Don't look now, but Target (NYSE:TGT) is taking market share from Amazon (NASDAQ:AMZN) in the U.S. retail business. After more than two decades of fighting against Amazon's e-commerce model, the brick-and-mortar giant seems to be on solid footing once again.
What's new in the battle between these two is that Target is actually growing faster than Amazon in the retail space. Both companies grew rapidly during the pandemic, but Target has found a way to leverage its brick-and-mortar presence to take market share from Amazon as the pandemic's impact has slowed.
Target the growth stock?
Below is a table of overall growth at Target compared to U.S. retail growth at Amazon. You can see that during the pandemic Amazon was a favorite for consumers, nearly doubling Target's growth, but today Target is growing more quickly.
|Company||Q4 2020||Q1 2021||Q2 2021||Q3 2021|
What these numbers don't show is just how quickly Target's digital services are growing. In its recently reported fiscal third quarter, Target's same-day services -- which include Pickup, Drive Up, and Shipt -- grew nearly 60% on top of 200% a year ago. In each instance, the brick-and-mortar stores have been a point of strength, not a weakness. That's the core change for Target over the past few years.
I will note that we may be seeing Amazon's growth slow because it pulled more sales forward during the pandemic than Target did. But time will tell if slower growth is a trend for Amazon.
Amazon's bigger problem
Another issue Amazon is facing is that e-commerce competitors are better than ever. Shopify (NASDAQ:SHOP) has made it so much easier to build a long-tail retail brand and reach customers around the world. Companies don't have to sell through Amazon's ecosystem; they can build brands on their own and reach customers directly.
Shopping has gotten easier too. Features like Apple Pay and PayPal Pay have taken the ease of checking out on Amazon and translated it across the internet.
Competition is much stronger than at any time in Amazon's history. The company has scale and a logistics infrastructure that's hard to match, but if growth continues to slow, it could create cracks in Amazon's armor.
The future of retail
Target and other retailers are leaning into their retail presences. Instead of being a weakness, these physical locations have become a strength, because goods can be ready in minutes or hours. I drive by a Target on a nearly daily basis, so swinging into the parking lot to pick up a few items without going into the store is a great way to shop.
Another strength Target offers is its incredible breadth of selection. The company has electronics and clothing, but also has everyday items like toiletries and groceries that are often needed both quickly and on a regular basis. By offering more of these products for delivery or Drive Up, Target can attract more customers.
I think we're just starting to see this shift to more localized e-commerce shopping, and Target is a leader. It has spent decades building out convenient locations and understanding what people want. Now as it digitizes the purchasing process and reconfigures stores to make picking up products even easier, I think it will continue to grow into a stronger and stronger competitor.