Big-box behemoth Target saw a strong surge in online sales in the most recent quarter, the company reported Wednesday, a sign that it is perhaps gaining momentum in its ambitious attempt to establish itself as a more serious player in e-commerce.
Digital sales at Target shot up 34 percent during the quarter that included the holiday season, a figure that looks especially strong compared to what occurred in the broader retail industry during that time: The National Retail Federation has reported that online sales grew 9 percent in November and December for the industry overall. And last week, Target’s chief rival, Wal-Mart, said its e-commerce sales ticked up just 8 percent in the same quarter.
The growth meant that online sales accounted for 5 percent of Target’s total sales haul — a relatively small portion, but nearly double the 2.7 percent share that online sales comprised in the previous quarter.
Now a key question for Target will be whether it can keep up that pace: During the holidays, the company had pushed aggressively to win shoppers’ online dollars, including by offering free shipping on all purchases even as Wal-Mart kept a free-shipping threshold of $50 in place. Without that kind of promotion, it remains to be seen whether shoppers will keep ratcheting up their spending on Target.com as they shift their focus from gift-buying to running errands.
Also, the retailer has said that profit margins are generally slimmer in the online channel, so if it continues to post strong growth in this category, it could come at the expense of higher margin sales. Still, some 30 percent of its digital sales came from offerings such as “buy online, pick up in store” which blend physical and digital shopping. Because Target doesn’t need to foot a bill for shipping on that type of online order, it can be better for the business’ bottom line.
Target reported a $1.4 billion profit in the quarter, an improvement over the $2.6 billion loss it delivered in the same period last year. However, its total revenue slipped 0.6 percent to $21.6 billion, a decline the retailer said is largely due to lost sales in the pharmacy category after it sold that business to CVS Health. Comparable sales, a measure of year-over-year growth online and at stores open more than a year, were up 1.9 percent, largely due to the digital growth and a bump in traffic at brick-and-mortar stores.
Target’s home goods department was one area that helped contribute to growth in the quarter and for the full year. Chief executive Brian Cornell said this category saw a 4 percent year-over-year sales increase, its best showing in over a decade. Target has lately been investing in more eye-catching displays for its home products, showing them off in Pottery Barn-style showcases instead of just packing them onto shelves. And in a season when many retailers reported weak apparel sales that they attributed to atypically warm weather, Target managed to deliver a 3 percent increase in that category.
Like Wal-Mart, Target also has been working to boost its business by making sure stores are not out-of-stock on key items. John Mulligan, the company’s chief operating officer and the leader of this initiative, said that out-of-stocks were 20 percent better in the latest quarter than they were in the same quarter last year.
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