Target (TGT 2.67%) has long been viewed as one of the retail stocks on the losing end of e-commerce, and there are some valid reasons behind that. The company's website has never been particularly successful when compared to Amazon, and Target's lure was always its big, clean stores with a broad and curated selection of products, which didn't quite translate online.
When the pandemic hit, it would have been easy to assume that Target would be one of those struggling to keep up as people shopped online. But Target has actually been a huge winner during the public health crisis, and it's because the company is leveraging its physical stores with digital solutions.
Image source: Target.
I need it now!
Long before the pandemic began, Target was investing in digital sales channels that would leverage its physical locations. Selling through Target.com and doing standard home delivery to customers has proven to be fruitless against Amazon, but with stores across the country, Target had other options.
One innovation that's been extremely valuable is Drive Up at Target. Customers order their goods online, and when they go to a designated parking spot at the store, someone brings their items out and even loads them in the car with minimal interaction with the shopper. From order to pickup, the process can take less than an hour. Some stores are starting to retrofit their parking lots and buildings to make this process even more seamless as it becomes more popular. And selection available for Drive Up is growing and could soon even include groceries, saving people shopping time on even more items.
Target also acquired Shipt in 2017 to enable customers to have someone else do their shopping for them and have goods delivered to their homes. Shipt isn't a Target exclusive, but as its owner Target is a key retailer on the platform.
For years, Target has been investing in making digital sales that leverage its stores. And in 2020, those investments have paid off.
Target becomes a growth retailer
Financial results overall and digital sales more specifically are starting to be impressive for Target. In the third quarter of 2020, comparable sales were up 20.7% and same-day services -- which includes Pick Up, Drive Up, and Shipt -- grew 217% versus a year ago.
Target isn't matching Amazon's overall product growth rate of 32.8% or Shopify's 96% growth, but you can see that digital sales growth is outpacing both companies. At the very least, Target is more than holding its own, and that's impressive as retailers across the world come under pressure from the COVID-19 pandemic.
Built to last
Target is never going to be the growth stock other online retailers can be, but it's a company that's built a nice niche in retail. It can leverage stores to provide convenient services to customers, and I could see its current growth continuing as it brings more grocery products to its digital services.
From an investment standpoint, the stock is still relatively inexpensive considering the current growth rate. And it comes with a decent dividend yield of 1.5% at recent prices.
TGT PS Ratio data by YCharts.
Don't count Target out as a retail stock. It has developed the digital tools it needs to succeed in retail and has the brick-and-mortar presence most other retailers can't compete with. That'll be a valuable combination in the future.
