U.S. retailer Target Corporation reported Q1 financial performance and the headline clearly points to online shopping investments paying off in responding to the COVID-19 coronavirus outbreak. Once more, the retailer’s strategic investment in online order fulfillment from individual stores made its mark.
Comparable sales originating from physical stores and online channels operating for 12 months reportedly rose 10.8 percent during the quarter, candidly, a significant accomplishment. Total revenues grew by 11.3 percent compared to the year earlier period.
Somewhat similar to our observations relative to Walmart’s recent financial performance, prior investments in digital transformation and online capability paid extraordinary dividends.
Digital sales rose 141 percent while contrasting physical store sales increased less than one percent. Of that digital number, sales accelerated from 33 percent in February to 282 percent in April. Same day online orders (Pick-up in store, Drive-up or Shipt delivery) rose 278 percent and reportedly accounted for 5 percentage points of total company sales growth.
Physical store sales were obviously impacted by the many government lockdown orders involving multiple U.S. states during the quarter. Keep in mind that for Target, a considerable portion of inventory for both stores and online sales flow thru physical stores. The retailer indicated that stores fulfilled upwards of 80 percent of first-quarter digital sales.
Like other online focused retailers, the virus impact made a significant incremental impact to costs, since a lot of additional people and resources were needed. For Target, operating income declined 58.7 percent to $468 million. None the less, other retailers h
ad far more severe operating income impacts, which will continue to unfold in reporting over the coming days and weeks.
While the retailer incurred its own struggles in prolonged out-of-stocks for in-demand items, customers continued to shop during their lockdown periods, most likely for the flexibility, convenience, and integral Shipt same day delivery capability. Target acquired Shipt in late 2017 for $550 million, and that investment now looks to be very insightful.
Additional Supply Chain Matters Perspectives
Since beginning his leadership as CEO amid a corporate profitability crisis, Brian Cornell has made significant effort in changing Target’s corporate culture to embrace an integrated physical store and online merchandising and inventory strategy. Chief Supply Chain Officer Arthur Valdez, recruited in 2017, after serving a leadership role at Amazon, has subsequently added other talented leadership from Amazon, Walmart and other innovative online companies. That included the creation of the role of Executive Vice President for Global Inventory Wide Management, a role previously unheard of in retail. Such moves were to prepare for needed capabilities that varied from traditional retail thinking several years ago, namely that online and in-store had to exist as two separate business, merchandizing and P&L entities.
Now, in the midst of the pandemic, where consumers had little choice but to turn to online to secure essentials, such thinking has made its mark. Obviously, that did not occur without corresponding investments in process, technology, and especially people.
This commentary relative to financial performance could not include without a Tip of the Hat to all those Target Associates and associated logistics and transportation teams who made personal sacrifices to ensure consumers were able to purchase essential goods, including having inventory availability.
The again, that goes for all essential workers.
Bob Ferrari
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