Transitioning from an old school retailer to a nimbler, quicker, online stalwart is exciting. Keeping up with millennials you feel young again. Trying to accomplish the feel while chasing Amazon (AMZN) at the same time can be taxing. Investors and analysts have come to expect thin to eroding margins for Amazon, with the potential for more upside in the future. This phenomenon is odd coming from large retailers used to growing margins while adding scale. Target (TGT) investors might have to just get used to it.
Target’s Digital Sales Are Exploding
Revenue for the quarter-ended February 3, 2017 of $22.8 billion was up by double-digits. This reflects a strong holiday shopping season which the overall retail industry also benefited from. A measure of whether a traditional retailer is adapting to the new sales environment is the strength of its digital sales. I view Amazon as more of a technology company, so growth in digital requires a certain technical competency as well as sales experience. So far Target is passing this test with flying colors.
Q4 sales grew by more than 25%. Target’s digital sales growth has outstripped that of even some smaller retailers. Digital is becoming increasingly important to Target. Total sales from digital were 8% during the quarter, up from 7% in the year earlier period. Comparable sales growth was 3.6% and half of that came from the digital channel. Signs suggest Target.com is competing well against other online retailers like Amazon and Walmart (WMT).
The latest trend among retailers like Bed Bath & Beyond (BBY) and Walmart is to allow customers to buy items online and pick them up at physical locations. The company’s recent acquisition of Shipt’s same-day delivery operations will allow it better service digital customers. Shipt will allow Target to deliver product to customers within hours. The start up delivery service is in about 70 markets, offering Target immediate scale and service it would have taken years to build on its own.