Target Store As Hub & Logistics Underscores Quarterly Growth
Target reported Q3 2020 earnings, and what a fascinating update it was (see more here).
Bottom line: More $ growth this year than in the last 8 years combined: $10B this year, led by supply chain "store as hub" efficiency and growth due to continued leverage of previous Shipt and Deliv acquisitions.
Some highlights and fun tidbits:
75% digital sales fulfilled by stores. 95% of all orders fulfilled by stores
Which means only 5% direct from a DC.
50% of orders are picked up within 2 hours. 66% within 4 hours.
3Q sales improved 20%, and AOV improved 20% year over year.
Store comps up 10% year over year, and digital up 155%.
Year on year category growers include electronics (50%), home (25%), apparel (10%) (intimates, sleepwear, men's (I expect casual/athletic)).
Many small-format store openings. All small-format stores are performing well, urban especially, although college campus stores slightly lagging (though bullish on those for later). Trying to get to 40 small-format stores per year at scale in future years.
To load-balance local store fulfillment, system shifts volume to lower traffic stores to improve overall system throughput.
Lowered promotional activity this year, even considering 1Q apparel write-offs.
Baskets expanded 15% year over year in stores, wider categories. More frequent visits.
Target+ progress: 175 partners now, and up to 400k SKUs total. No GMV report.
Shipt progress: grew 280% 3Q y/y, and will be a key part of 4Q. Still adding retailers - added Bed, Bath & Beyond. Doubled # shoppers since Spring. Adding 100k shoppers.
Akhilesh Srivastava said that he and many other “retailers have moved the backend processes and inventory to fulfill from stores when possible but where they have a huge ‘Grand Canyon level’ gap is when it matters to the customers - when they are making the buying decision on the product/cart/checkout. This is where Target's technology investments are paying off very nicely. Seamlessly connecting the customer shopping experience with the real-time inventory and ultimately delivery/pick-up options. I am starting to see more and more retailers paying attention to this”
Bharat Sawhney chimed in to say: “As a happy Target customer, I am not surprised. Their driveup experience is such a breeze and makes shopping fun even in this environment. It’s my go to store even though ours is an Amazon Prime household. Nothing beats instant gratification.”
Sebastian Lopez-Otero posed a question asking “how the temporary breakdown the Prime shipping promise during supply chain strain helped the traditional retailers' BOPIS (buy online pick-up in store)”
Jonathan Haney responded to this, saying that Sebastian’s “premise may be true, I think the better framing is to think about how traditional retailers are prepared for supply chain disruptions: Target's strategy gave them [the ability] to accelerate if supply chains became strained. When given the chance, they accelerated into the opportunity. Many other retailers weren't flexible enough and had to scramble.”
Geoffrey Lenart reframed with a really interesting line of questioning: “The completely obvious question is how much of this is repeatable. We all know that state and county governments GAVE Target, Walmart, and Amazon a massive $ trillion Plus windfall by allowing them to stay open during the Pandemic while closing down smaller competitors. For the next several years, we are going to ask ourselves how the bureaucrats came up the list of essential vs non essential businesses.”
Food for thought (or, likely, a future post).
