Target is benefitting from being not quite one thing or the other. The U.S. retailer, formerly an e-commerce laggard, reported better-than-expected sales at its stores on Wednesday, as well as rapid growth online. The lesson is that sweet spot for retailers may be somewhere between the real and digital worlds.
The $64 billion chain known for its bull’s eye logo is hitting the mark. Same-store sales in the latest quarter rose more than expected from a year earlier – the opposite of what happened on Tuesday to fellow U.S. retailer Kohl’s. In another contrast with that beleaguered store chain, Target’s inventory of unsold goods fell by $1 billion, and its gross margin – a sign of how successfully it can mark up the price of goods it buys – rose by around 1 percentage point to 29.8%.
Three years ago, Target was in a strategic bind. Chief Executive Brian Cornell had pleaded with investors for patience, because the company was way behind when it came to selling goods online. The investment that followed is now paying off, since comparable e-commerce sales were up more than 30% year-on-year. After the 12.5% rise in the stock on Wednesday morning, Target’s shares have delivered a three year total return of 80%, close to Walmart, and far better than the 51% return from the S&P 500 Index.
What’s also changed though is that having a fleet of brick and mortar stores doesn’t look so much of a weakness, because there’s a happy medium. Target credited its “click and collect” option and same-day delivery for its sales rise. Walmart has also found that mixing the two strategies can add growth rather than just switch it from one channel to the other.
Even Amazon has taken notice, both through the $14 billion purchase of grocery chain Whole Foods Market and its placement of Amazon lockers for customers to collect goods rather than have them delivered at home. Where once retail looked like a race to be digital, it’s now looking more effective to have one foot planted in both worlds.