Store Fulfillment Boosts Target's Q1 Comps

Touting the success of refurbished stores and the digital fulfillment options originating within, Target Corp. reported robust gains in same-store sales during its fiscal first quarter.

Comparable-store sales in the quarter, which ended May 4, increased by 4.8% and reflected a 2.7% increase in store comps and an additional 2.1% contributed through digital sales. Overall digital sales improved by 42% in the quarter as Target saw what CEO Brian Cornell called “really positive guest response” to a suite of fulfillment options originating in stores, including pickup, drive-up and home delivery through its Shipt offering. Store traffic was up by 4.3%.

The comp increase exceeded the company’s expectations, Cornell said, while the fulfillment strategies are helping support more cost-effective e-commerce that customers prefer.

“When we move digital fulfillment from upstream DCs (distribution centers) to stores, we see a significant reduction in expense … about a 40% reduction,” Cornell said in a conference call transcript provided by Sentieo. “When we go from an upstream DC to some of our same-day fulfillment offerings like order pickup and drive-up, we see a 90% reduction in costs. Those were the fastest-growing parts of our digital fulfillment during the quarter, and we expect that to continue. It’s clearly where we're seeing the guest preference."

“We made the decision to put our stores at the center of our fulfillment strategy,” he added. “And you’re seeing that pay off right now.”

Walmart, which earlier this month also posted significant sales increases, similarly touted benefits of an e-commerce offering built around stores offering pickup. Some general merchandise competitors such as Kohl’s reported disappointing results over a similar period.

“I think what you are just seeing is the emergence of winners who have been investing in their business that are adapting to this new omnichannel environment,” Cornell said when asked to comment on struggling competitors. “And unfortunately, those that are ceding share that have not been able to invest and evolved to the new consumer environment.”

Food comps were up by about 3% in the quarter, Target said, led by mid-teens comps in adult beverages. Cornell pointed out success of its $9.99 wines under the California Roots private brand.

Store remodels and new operating practices are also having positive effects on sales, Cornell said. The company is on pace for about 300 renovations this year, which are helping stores realize incremental sales and provide more merchandising space for signature categories and e-commerce fulfillment.

Cornell also spoke about the benefits of staffing stores with category experts “who can move beyond task and share their expertise with guests, providing advice and perspective to help them find that the best products to meet their needs.

“Some of these experts were already on our team, but this new model allows them to focus on their passion rather than serving as a general athlete across multiple categories.”

Sales of $17.4 billion in the quarter increased by 5.1%. Net earnings increased by 10.8% to $795 million.