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For Target, Pandemic Shopping Patterns Offer a Glimpse at Retail's Near Future

By Demitri Kalogeropoulos – May 28, 2020 at 12:20PM

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The company is even more confident in its omnichannel growth strategy in light of how well it adapted to the COVID-19 crisis.

Target (TGT 0.50%) last week announced positive earnings results for its fiscal first quarter, which ended May 2, and reveals that it had gained market share as the COVID-19 pandemic struck the United States. Customers first turned to its stores to stock up on staple food and grocery products, then ramped up spending in discretionary areas like electronics and home furnishings in late April.

The company benefited from its wide catalog of merchandise and its robust digital fulfillment network during a period when many of its more-focused rivals' stores were closed due to their status as non-essential retailers. Yet in the conference call with analysts, CEO Brian Cornell and his team told investors that they expect an enduring increase in sales that's directly tied to Target's execution through the pandemic.

Let's take a look at some highlights from that call.

A woman shopping through her smartphone.

Image source: Getty Images.

Dramatic demand shifts

Unprecedented volatility within the quarter presented the most extreme test of our business and operations that I could have imagined. 
-- Cornell

Target posted a record 11% boost in comparable-store sales for the quarter, but the growth was anything but steady. Comps were edging up 4% before the pandemic scrambled consumer behavior in March, initially by spiking demand for groceries and other essentials before driving store traffic downward.

Rapid shifts in demand occurred across merchandise categories and selling channels, and executives credited front-line employees and a flexible operating model for allowing the company to effectively navigate the challenges. "The first quarter demonstrated the strength of that model," Cornell said.

Soaring digital sales

On an average day in April, our [digital] operations were fulfilling many more items and orders than last year's Cyber Monday.
-- Cornell

Sales through Target's digital channels grew 141% in the quarter and were responsible for essentially all of its comp-sales growth. That spike was heavily weighted toward the end of the quarter, in late April, when consumers began to make more discretionary purchases with support from federal stimulus checks.

April e-commerce sales jumped 282%, in fact, which corresponded to record volumes for nearly every day of the month. Management celebrated the relative smoothness with which it adapted its operations, reflected in high customer satisfaction scores, despite the fact that it had no lead time to plan for the demand surge.

A new way to shop

More than 5 million guests used our 'Drive Up' service in the first quarter, with 40% of these guests new to the service.
-- COO John Mulligan

Target scaled back its store expansion plans, but management was careful to stress that the shift was not a reflection of weakness in the physical retailing world. While the broader industry is "overstored" in their view, Target's recent experience has executives valuing their store base even more highly.

Customers enthusiastically tilted their spending toward both at-store pickups and same-day delivery, and those avenues require an omnichannel selling model. Shopping trends are already reverting back toward normal levels. But Target doesn't see the last few weeks as a freak situation -- it considers it a preview of what's ahead as shoppers more aggressively shift toward online orders with in-person components over the next few years.

Based on that forecast scenario, management can see the pandemic surge as having provided it with two major positives. The first was that it gave the retailer a chance to successfully stress test its business. But more importantly, Target has introduced millions of new shoppers to its omnichannel platform in the past couple of months. Its high level of execution and elevated customer satisfaction scores suggest it has a good shot at converting many of them to loyal omnichannel shoppers even after the retailing industry returns to something like normal business operation.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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