The Supply Chain Matters blog provides highlights of retailer Target Corp.’s Q1 financial performance, and how placing physical retail stores as the apex to online fulfillment and added traffic volume is delivering quantified results.
U.S. retailer Target Corp. reported very impressive Q1-2019 financial performance results that included the retailer’s 8th consecutive quarter of comparable revenue increase.
Total quarterly revenue was reported as $17.6 billion, reflected by an overall comparable same store sales growth level of 4.8 percent, consisting of 2.7 percent growth in physical store and 42 percent in online comp revenue growth, adding 2.1 percentage points to company’s organic sales growth.
The retailer’s first quarter profits rose 11 percent year-over-year to $795 million.
Q1 comparable traffic was up a very healthy 4.3 percent on top of 3.7 percent reported a year earlier, which is a significant achievement for a prior brick and mortar concentrated retailer of several years past.
CEO Brian Cornell indicated that the retailer’s revenue and traffic growth are expanding more than the market, and that added process and technology investments in online consumer fulfillment and augmented supply chain capability that were initiated two years ago are now bearing fruit.
The retailer reported that online same-day delivery drove over half of online sales growth during the quarter. Similar to rival Walmart, strong holiday performance in the Valentine’s Day and Easter holiday periods, along with added concentration in toys and baby-oriented merchandise selection, previously removed by the bankruptcy of Toys R Us and other retailers, led to positive traffic.
Our readers will recall that Target took on a different approach to online consumer fulfillment, electing to have its U.S. network of physical retail stores serve as online pick and pack fulfillment for local online consumers. Some portion of Target’s digital orders will continue to be shipped from customer fulfillment centers while other items will continue to be direct shipped by designated suppliers.
In a blog commentary published in August 2018, we noted how former Amazon supply chain executive Arthur Valdez after being appointed Target’s Chief Supply Officer, has brought in additional executive talent to include an Executive Vice President for Global Inventory Wide Management, a role previously unheard of in retail. That was to prepare for ongoing capabilities.
In briefing investors, Cornell indicated: “Our ability to offer these same-day services, which delivers high level of satisfaction, is a result of our strategy to put stores in the center of fulfillment. In fact, our stores handled more than 80% of our first quarter digital volume, including all of our same-day options combined with digital orders shipped directly from stores to guests’ homes.”
According to the retailer, guests more than 1,500 stores across more than 250 markets can order through the Shipt personal shopping service, and have their order delivered to their front door, kitchen table, even their refrigerator in only an hour or two.
In the Q1 financial performance briefing, Target CFO John Mulligan acknowledged ongoing investor questions about the long-term viability of keeping physical stores at the center of fulfillment. He noted that the retailer’s management is confident that this is the best long-term solution for Target. Mulligan stressed that Target is on track to grow digital sales by more than $1 billion in 2019 and fulfilling even higher percentages of this volume from stores. Noted was the following:
“We’ve said many times that using our stores as digital hubs enhances our speed and reduces cost. And importantly, moving to store fulfillment does not increase the frequency of split shipments. In fact, even though store fulfillment continues to grow rapidly, the rate of split shipments this year is running lower both in our stores and in total compared with last year.”
Supply Chain Matters Perspective
All and all, a very impressive start to 2019 and a testimonial, at least thus far, that an online retail fulfillment model that places local physical stores at the apex bearing results with manageable costs.
Both Target and Walmart are providing ongoing evidence that some select major U.S. retailers have now found a way to compete and coexist in the new online retail economy.
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