We review Target’s fourth quarter performance and how its focus on creating an omnichannel strategy, optimising its stores for ecommerce fulfillment, is underpinning sales growth and cost reduction.
Winning in stores and online
Target delivered a strong finish to the year with comparable sales up 5.3%, and comparable store sales up 2.9%. This reflects the continued strong growth of its digital business, with sales up 31%. The retailer also benefitted from its strongest store traffic for over 10 years, providing a solid foundation for the business in the new financial year. Overall, total revenue of $23.0bn was flat to last year. For the full year, total revenue was up 3.6% to $75.4bn, with net earnings up 0.8% to $2.9bn.
Investment plan delivering for the business
These results reflect the progress that’s been made in transforming Target over the last two years as it has set out to become “America’s easiest place to shop.” In 2017 it put in place a major investment programme to reimagine its stores, re-engineer its supply chain, build new ecommerce fulfillment capabilities and develop a suite of new private brands. The retailer has thrived as many of its peer group have faced trading challenges, with many closing stores or exiting the market completely. Commenting on its relative performance, president and CEO, Brian Cornell, stated,
”As a shakeout in our industry continues, the separation between those who can afford to invest, and those who can't is real.”
Source: IGD Research
Expanding its smaller format store network
Having accelerated its progress last year, in 2019 the retailer will focus on driving adoption and scaling its initiatives. Having remodelled 400 stores in the last two years, it will undertake 300 this year, along with an additional 300 in 2020. While it has pulled back opening any larger format stores, it continues to see solid results with its smaller formats. With almost 100 in the network, it will add 20-25 new stores each year, focused on urban locations and college campuses. The expansion of this format, which is enabling it to enter new communities, forms part of its planned $3.5bn capital expenditure.
Scaling up its digital fulfillment options
Digital sales have grown to more than $5bn annually as it has built an omnichannel strategy, optimising its store network. The business has rolled-out the Shipt same-day delivery service to almost 1,500 stores and expanded Drive Up to 1,000 stores. Last year, almost 2m store pickup deliveries were undertaken, with most meeting its two-minute target. The Shipt programme will be expanded to include some general merchandise categories this year as it continues to develop its range of fulfillment options.
Equipping the supply chain with new capabilities
Developing its stores as fulfillment centres has been at the heart of this strategy, enabling it to ship orders faster, and at lower cost, than through an upstream fulfillment centre. Combined with technology, automation and process efficiencies, Target has lowered its average cost of fulfillment by 20%. During the fourth quarter, 75% of all online orders were fulfilled by it stores. This would not have been achieved without the re-engineering of its supply chain which enables to retailer to send stores exactly the product required in pallets, cases or single units. These capabilities will be extended across its supply chain network over time, although this work is unlikely to start until 2020.
New private brands and partnership
Having introduced 20 new private brands over the last two years, Target continues to see white spaces and opportunities to build brands to attract new customer groups. Kids and babies will be a major focus this year as it aims to capitalise on the exit of Toys R Us. It will also launch new brands and design partnerships and develop best-in-class brand management expertise across the business.
A new vision for food and grocery
Grocery continues to be a work-in-progress, although there is growing momentum in this business. Recently it appointed Stephanie Lundquist to lead this business and expects to make faster progress over the next few years. The business has been restructured to include buying, operations, and supply chain, enabling Target to build a more robust and cohesive business.
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