Target (TGT -1.70%) has been one of the big winners since the onset of the pandemic. Customer demand rapidly surged when it was deemed essential while other retailers closed. Target did an excellent job managing the influx of new customers and increasing demand from existing customers.
One of the keys to its ability to fulfill the surge in business was robust omnichannel capabilities. The company's three same-day services (drive-up, same-day delivery, and in-store pickup) are incredibly popular with its customers and are the more profitable methods of fulfillment for Target. When the company reports third-quarter earnings on Nov. 17, shareholders will want to see that management is doubling down on its omnichannel advantage.
Target's fulfillment options are popular with consumers
Impressively, Target's digital sales increased by 10% in its second quarter ended July 31. Typically, a 10% increase would not be that impressive, but it is compared with last year's Q2, when Target's digital sales grew by 195%. The spread of COVID-19 was spooking people a lot more last year when vaccines against the virus were unavailable. That spurred a surge in online shopping as folks avoided potentially crowded stores.
Target management can be commended for preparing the business to handle the influx of orders. The company has invested in making itself a more convenient shopping destination. Consumers who order online have multiple options to choose from in fulfillment. Traditionally, and the most expensive for retailers, is that consumers have had the choice of free home delivery if they spend more than a threshold figure. In addition to it being expensive for retailers, it's not the best option for consumers as delivery can take several days.
Realizing this, Target has rolled out same-day delivery, where consumers can get the items they ordered within hours for a small fee or for free through a subscription to the service. Further, Target has also expanded its in-store pickup service to include more items and options. And consumers can now drive up to a Target location and have their purchases delivered to their car.
Each of these services is popular with customers, especially the drive-up service, which increased by 80% in Target's most recent quarter after rising by 700% in the same quarter last year. The advent of these services gives Target a competitive advantage against Amazon, which as fast as it is getting in making deliveries, is still behind in same-day fulfillment.
Target works to keep pandemic gains
Analysts on Wall Street expect Target to report revenue of $24.5 billion and earnings per share (EPS) of $2.81 in Q3. If Target meets the EPS estimate, it will be two pennies higher than it reported in the same quarter last year.
It's important to remember that, in the fiscal year 2021, Target increased sales by 19.8% and EPS by 35.8%. If the company can hold onto the gains it made last year even as economies reopen and it has more competition for consumers, investors would be pleased. Certainly, emphasizing its same-day fulfillment options will help Target drive earnings higher.