Target's omni-channel retail thinking pays off with largest quarterly sales surge in nearly 60 years
Target’s omni-channel retail thinking pays off with largest quarterly sales surge in nearly 60 years
Thu, 08/20/2020 – 02:35
- Target has long been al best practice exemplar of omni-channel retail transformation and that’s paid off big time during the past few months.
And have a winner! In the ongoing rash of retail progress reports, where those who have put in the digital spadework a long time ago have been the best to ride out the COVID storm, Target just upped the stakes by turning in the largest quarterly sales surge in its 58 years history.
Regular readers will know that in tracking Target’s omni-channel transformation work over the past few years, diginomica has come to recognize the retailer as a best practice exemplar in its sector. It’s upgraded an ageing store infrastructure and built out its digital offering, a powerful combination that has, in the main, managed to find that offline/online balance that eludes so many in the retail space.
The company turned in revenues of $23 billion for the three months ended 1 August 1, $4.5 billion up on the same period last year, while net income was $1.69 billion, up from $938 million a year ago. Digital sales tripled for the period and year-to-date digital sales of nearly $7 billion have already surpassed full year digital sales in 2019. But CEO Brian Cornell was quick to point to a familiar theme of his – the importance of the new role of physical stores in the omni-mix:
Our stores actually drove more than 90% of our second quarter growth, given that they enabled more than three quarters of our digital sales and an even higher percentage of our digital growth. Store base fulfilment is uniquely suited to our business model because of the way it fits within our overall strategy. In particular, it aligns with our merchandising approach, which is based on curation, both in our stores and online assortments. As a result, the majority of our digital demand is driven by items that are already available in our stores, which positions us to efficiently rely on those locations to fulfill the demand.
Among our store enabled digital fulfilment options, we continue to see the most rapid growth in our same day offerings, in-store pick up, drive up and shipped. These services offer speed, reliability, convenience and value to our guests. Their digital capabilities enhanced by human interaction, even though they’re contactless. This explains why they generate some of the highest levels of satisfaction of anything we provide. Together our same day services, we saw more than 270% comp growth in the second quarter, outpacing overall digital growth. Among these services, we saw the fastest growth in drive-up, which grew an astonishing 734%.
More to come
The months of the COVID crisis have seen continuing enhancements to these omni-services, added COO John Mulligan, pointing to Target data that suggests that a multi-channel customer spends 4 times as much as a store-only one and 10 times as much as a digital purist. Sales on orders shipped from stores have grown more than $1.6 billion, while sales from pick-up and drive-up services have grown more than $1.6 billion, with drive-up accounting for well over $1 billion of that growth:
We continue to implement process enhancements to our digital fulfilment services, driving both efficiency and speed for our guests. This quarter, we introduced improvements to the Target app, allowing guests to toggle their fulfilment choice between pick up and drive up orders up until the point that guests arrives at the store. This option provides additional flexibility for the guests to update their fulfillment option as their plans change.
Given the explosion in demand we’ve seen this year, we’ve been adding additional drive up spots and locations across the country. This additional capacity was contemplated in our original plan, but with recent growth, we are adding these extra spots earlier than originally anticipated. The process is straightforward as we add 2 to 12 additional spots depending on store specific needs, repainting the parking stalls and using additional temporary signing to highlight the change.
For our shipment store capability, we continue to roll out process improvements for processing orders and packing boxes, increasing efficiency and reducing waste. And we’ve also enhanced prioritization algorithms to ensure that the orders with the most time sensitive items, including COVID sensitive categories are prioritized earliest for packing and shipping.
Target is becoming more efficient in how it delivers omni-channel fulfilment, he added, which has cut down the additional costs associated with handling that comes from digital ordering:
These efficiencies are driven by multiple factors. First, as we continue to roll out new tools and processes, we have been seeing increased efficiency across each of our digital fulfillment options. Second, we are benefiting from favorable mix within digital fulfilment as our same day options continue to grow faster than overall digital growth average unit costs go down because these options are much less costly compared with shipping to home.
Third, we’re seeing meaningful leverage on digital fulfilment, given the unusually high growth rates we’ve seen this year. Some of this leverage is more subtle than conventional fixed cost leverage. For example, as stores drive up order volume increases, more and more of the time, our team is able to pick multiple orders together, gaining efficiency in the pick process. In addition, we realize a similar benefit in the parking lot, where our teams are increasingly delivering multiple orders at a time, reducing the cost per order of that delivery trip to the parking lot.
And finally, as we’ve seen meaningful trip consolidation this year, we realized that benefit as fixed order costs are spread across more items. Aggregating all of these benefits, our second quarter average unit costs for digital fulfllment, was approximately 30% lower than a year ago. This provided a significant offset to the cost pressure we would otherwise be seeing from our unusually high rate of digital sales growth.
Digital ‘stickiness’ has also been increasing, said Mulligan:
As we gain new digital guests in unprecedented numbers, we are also seeing higher engagement from these guests than we’ve seen in the past. Specifically among our new digital guests in the first quarter, we’ve seen nearly double the rate of repeat purchases within seven days compared with a year ago. And the rate of repeat purchases in the intervening 90 days has been fully doubled what we measured a year ago. Given that we’ve added 10 million new digital guests in the first half of the year, we feel good about our prospects for building on their elevated level of engagement over time.
Image credit – Target