A year ago, it seemed that Target (TGT -0.70%) was being left behind by its more online and more nimble retail stock competitors. The big-box retailer had largely failed to move into e-commerce sales, which it was losing to both Amazon (AMZN -1.64%) and Walmart (WMT 1.32%), and there wasn't a clear path to growth.
But as the pandemic wore on into the summer, it became clear that Target had some critical advantages over the competition. It began to leverage the stores that it has scattered across the country to reach customers where they were almost instantly. The store Pick Up/Drive Up options became more popular, Shipt delivery growth picked up, and some of the flaws of arrivals begin to show as customers changed their buying habits. Here's how Target has won in the pandemic.
Image source: Target.
Filling a need
Two keys to Target's surprising year are its well-curated stores and convenient, fast pick up and delivery options.
I think investors should look at Target through the eyes of parents, who are Target's key group of customers. They might be looking for diapers or clothes or a few grocery items and don't want to sift through thousands of items on Amazon or wait two days for delivery. They want fast and convenient, so bringing the familiarity of a Target store into the "gig economy" has been key for the company.
Curated and familiar stores
When the pandemic began and millions of people spent more time in their own homes, they begin to look for online shopping options to fill their normal retail shopping needs. Amazon was clearly the first winner in this transition because it's the top online retailer in the world. But Amazon has also begun relying more heavily on third-party sellers rather than curating its own inventory. If you're shopping for everyday items like diapers, toilet paper, and a gallon of milk, Amazon might not be the best place to shop.
What Target was able to do is leverage the high-quality, familiar, everyday inventory it has in stores all the time. Amazon may be the "everything store," but curation has been a differentiator for Target, and that was key once it was easier to buy online and get products almost immediately.
Digital shopping on the go
Target's curated stores may be a differentiator, but until the pandemic hit it was still necessary to go into the store, find what you needed, check out, and get back home. A few clicks on Amazon or Walmart's app and waiting a few days saved the shopping headaches, which is why they were taking share.
Pick-up was one key offering that changed the trajectory for Target. If we go back to thinking about this through a parent market lens, shoppers often need everyday items now, not a few days from now. And if people happen to be out driving around, the idea of getting out of the car with kids can be stressful enough. Pick-up allowed Target to offer its curated inventory online with easy pickup: No getting out of the car, and items are often ready in a matter of minutes.
In Minneapolis, where Target is headquartered, the company is reconfiguring stores and parking lots to serve pick-up and drive-up customers quickly and easily, which has made it a part of my everyday routine. This is a differentiator that Amazon simply can't compete with, because it doesn't have as many physical locations.
Shipt -- arguably the best acquisition Target has made in decades -- took the convenience of pick-up to the next level. The company matches customers with shoppers, allowing the customer to shop from a mobile device and have items delivered to their door, sometimes within an hour. This is like having your personal Target shopper at your fingertips. Amazon has tried fast delivery, but there's something more convenient and familiar in connecting with a real shopper who is in the aisle of a Target store or your local grocery store.
Target's business turns around
Proof that these features are working for Target is front and center in the company's earnings releases. In fiscal 2020, the company's comparable-store sales were up 20.5% and digital comparable sales were up 118%. Same-day services -- like pick-up and Shipt -- grew 235% for the year.
The momentum continued in the fiscal first quarter of 2021 with comparable sales up 22.9%, same-day services growth over 90%, and a 123% increase in drive-up sales.
Building a foundation for growth
The pandemic's growth may be an outlier for Target, but the company may have "trained" a new generation of customers who view the company's services as even more convenient than e-commerce giants like Amazon. And building shopping habits can be a powerful way to grow a business. Target has done exactly that during the pandemic and has come out one of retail's surprise winners.
