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Target sees in-store and online improvements (TGT)
BI Intelligence
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Target reported its results for Q2 2017 yesterday, revealing a 1.6% year-over-year (YoY) uptick in revenue to $16.4 billion for the period.
The retailer also saw its same-store sales rise 1.3% YoY, marking the end of a three-quarter streak of declines in the metric. Target attributed the positive figures to a 2.1% YoY increase in transactions across physical and digital channels. Digital sales were especially strong, advancing 32% YoY, and contributing 1.1 percentage points to the company's total sales growth for the quarter.
Target’s internal investments seem to be paying off. The retailer has committed $7 billion to a three-year transformation in a bid to improve its outlook, and some of those investments are already bearing fruit:
Target’s new private brands are doing quite well: Cat & Jack, a children’s apparel brand, has reached $2 billion in sales in its one year of existence, and Cloud Island, a baby brand launched in May, saw double-digit comparable sales growth this quarter. The company plans to launch another 12 private brands over the next 18 months, including four this fall, which could help better differentiate Target from its competitors and attract more customers.
The company has opened 34 small-format stores, and plans to double that number. Target’s lift in revenue could mean these new formats are drawing the attention of consumers, and bringing them back around to the retailer's physical locations.
Target has been working to improve its online shopping experience, and its healthy bump in digital sales this quarter points to the success of these efforts. The company is continuing to build out its digital offerings, with same- and next-day delivery services currently being tested at several locations.
Target may be on the right path, but it still has work to do to compete in a digital-first environment. Digital sales only accounted for 4.3% of Target’s total sales this quarter, and 4% in 2016, amounting to $3.1 billion last year. Amazon, on the other hand, had $92 billion in online sales in 2016. Target’s Q2 increase in digital sales is promising, but it will need to sustain that kind of growth for some time to make its online arm a material part of its business. Target also needs to revitalize its food unit, which turned in a flat performance in Q2, as Amazon gears up to enter the industry with its acquisition of Whole Foods, and other grocers are engaged in a price war.
Brick-and-mortar retailers are caught on the wrong side of the digital shift in retail, with many stuck in a dangerous cycle of falling foot traffic, declining comparable-store sales, and increasing store closures. Over 8,600 retail stores could close this year in the US — more than the previous two years combined, brokerage firm Credit Suisse said in a recent report. Meanwhile, e-commerce pureplays are riding the rise of digital commerce to success — none more so than Amazon, which accounted for 53% of online sales growth in the US last year, according to Slice Intelligence.
In response, many brick-and-mortar retailers have started to use omnichannel fulfillment methods that leverage their store locations and in-store inventory in order to better compete in e-commerce. These omnichannel services, including ship-from-store and click-and-collect, can help retailers manage the transition to digital by:
Increasing online sales by offering cheaper, more convenient delivery options for online shoppers.
Limiting the growth of shipping costs as online sales volumes increase by leveraging store networks for delivery.
Keeping stores relevant by turning them into fulfillment centers that pull customers in to pick up online orders.
However, few retailers have mastered these new fulfillment services. While these companies have spent years optimizing their supply chain and logistics networks for delivering goods to their stores or directly to customers’ doorsteps, most have yet to figure out how to profitably bring their store locations into the e-commerce delivery process.
Jonathan Camhi, research analyst for BI Intelligence, Business Insider's premium research service, has laid out the case for why retailers must transition to an omnichannel fulfillment model, and the challenges complicating that transition for most companies. This omnichannel fulfillment report also detail the benefits and difficulties involved with specific omnichannel fulfillment services like click-and-collect, ship-to-store, and ship-from-store, providing examples of retailers that have experienced success and struggles with these methods. Lastly, it walks through the steps retailers need to take to optimize omnichannel fulfillment for lower costs and faster delivery times.
Here are some of the key takeaways from the report:
Brick-and-mortar retailers must cut delivery times and costs to meet online shoppers’ expectations of free and fast shipping.
Omnichannel fulfillment services can help retailers achieve that goal while also keeping their stores relevant.
However, few retailers have mastered these services, which has led to increasing shipping costs eating into their profit margins.
In order to optimize costs and realize the full benefits of these omnichannel services, retailers must undertake costly and time-consuming transformations of their logistics, inventory, and store systems and operations.
In full, the report:
Details the benefits of omnichannel services like click-and-collect and ship-from-store, including lowering delivery times and costs, and driving in-store traffic and sales.
Provides examples of the successes and struggles various retailers have experienced with omnichannel delivery.
Explains why retailers are having trouble managing costs with their omnichannel fulfillment efforts, which are eating into their profits.
Lays out what steps retailers need to take to optimize costs for their omnichannel operations by placing inventory where it best meets customer demand.
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