Even with the coronavirus-related boost in online shopping, Target Corp.’s stores remain integral to the company’s growth.
The retail chain’s ecommerce sales grew an explosive 145% in its fiscal year ended Jan. 30, Target reported today. Online sales reached $16.63 billion, up nearly $10 billion from 2019. That means ecommerce accounts for 18% of its total sales, compared with 9% in 2019 and 7% in 2018.
But Target’s nearly 1,900 stores were an integral part of digital growth, executives said on a call today discussing the results. 95% of all sales (in stores and online) were fulfilled from the chain’s physical stores. Its omnichannel services were a key to digital fulfillment.
Curbside pickup sales, which Target terms Drive Up, grew 600% year over year. Same-day delivery through Target’s partnership with delivery vendor Shipt grew 300%. (Target acquired Shipt in 2018.) Online orders picked up at stores jumped 70% from 2019. Combined, fulfillment through same-day services grew 232% year over year.
Omnichannel customers—customers that purchase from stores, mobile and online—spend four-times more than store-only buyers on average, and 10-times more than digital-only customers, the company says. In 2020, Target acquired 12 million new multi-channel buyers, which includes existing customers who were previously shopping through one channel as well as new customers to Target.
Target’s profitability in 2020
Target executives touched on an important issue retail chains face with digital growth: profitability. For example, executives said store fulfillment helped outweigh the cost of shipping online orders. When online orders are shipped from a store, it’s 40% cheaper than fulfilling from a warehouse, chief operating officer John Mulligan said on the call. Additionally, fulfilling same-day orders through Shipt costs 90% less than shipping from a warehouse, he added.
What’s more, when Target’s in-store Starbucks coffee shops were temporarily closed at the start of the pandemic, Target trained Starbucks baristas on packing Target orders in stores to help with the increase in the volume of order pickups.
The gross margin rate—which partly shows how expenses are affecting the company’s profit—was 28.4% for the full fiscal year compared with 28.9% in 2019. “This rate decline reflects unfavorable category sales mix and higher supply chain and fulfillment costs from channel mix, partially offset by markdown favorability,” the company said in its earnings release. Meaning, digital fulfillment is having an impact on profitability, but perhaps not as much as it may have thanks to Target’s ability to reduce some costs with its store fulfillment.
Looking forward, Target did not provide any guidance for 2021, citing that the continued uncertainty of the pandemic poses challenges in predicting the coming year. It did say it plans to expand its supply chain with two new distribution centers this year, and that it will “double down on sustainability” and provide a more personalized experience through its app-based loyalty program, Target Circle.
Additionally, it plans to expand the retailer’s growing private-label business. The chain now has 30 private-label brands, and 10 of those brands bring in $1 billion in revenue each, with four crossing $2 billion in sales last year, executives said. Combined, Target’s private-label business accounts for a third of total revenue.
With its digital growth this year, Target is projected to crack the Top 10 for the first time as a leader in North American ecommerce. Based on our early analysis, we project Target will be the No. 7 retailer in Digital Commerce 360’s 2021 Top 1000, a ranking of the largest online retailers in North America based on 2020 web sales. The 2021 ranking is set to launch in early April. Target was ranked No. 12 in last year’s rankings.
For the fourth quarter ended Jan. 30, Target reports:
- Ecommerce growth of 118% compared with Q4 2019.
- Same-day services, including order pickup, curbside pickup and deliveries through Shipt, grew 212%, led by a more than 500% growth in curbside.
- Total revenue of $28.34 billion, up 21.1% from $23.40 billion.
- Net earnings of $1.38 billion, up from $833.0 million.
For the fiscal year ended Jan. 30, Target also reports:
- Net revenue of $93.56 billion, up 19.8% from $78.11 billion.
- Net earnings of $4.37 billion, up from $3.28 billion.
Percentages may not align with dollar figures due to rounding.