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Target's digital sales skyrocket, but at the expense of profit

Retail Dive

PUBLISHED April 23, 2020

Dive Brief:

  • Target says it's gaining market share, but shedding profits as shoppers shift from stores to online buying, the retailer announced Thursday in a business update.

  • The company's digital sales are up 100% year-over-year since the beginning of February, with April online sales so far increasing more than 275%. Store comparable sales have decreased in the mid-teens in April following a rush to stores in March. Overall, Target's comparable-store sales have increased 7% since the beginning of February, and the company expects operating margin to drop by more than 5% in the first quarter.

  • Target also announced Thursday it's extending its $2-an-hour wage increase for employees until May 30. It will also extend its back-up childcare benefits and its 30-day paid leave benefit, which applies to workers 65 or older, pregnant or those with underlying medical conditions, through the end of May.

Dive Insight:

Target's grocery assortment has played a key role in keeping shoppers coming back to the retailer, both in stores and now online. Comparable sales in essentials and food and beverage grew 40% in March and are up 12% so far in April. Target offers delivery of groceries and other products via Shipt from all of its stores. It also offers in-store and curbside pickup service that includes some non-perishable food and beverage products.

However, Target doesn't offer fresh groceries as part of its pickup service, and that could hurt the company as it continues to push through the pandemic. Target announced plans to roll out pickup service for fresh groceries along with alcohol in early March, but paused the initiative later that month as the virus disrupted operations. According to an update from CEO Brian Cornell, the company didn't have the time to properly scale the program and train associates.

Competing retailers like Walmart and Kroger, meanwhile, are expanding click-and-collect services as shoppers scramble for available order slots.

Target's April slowdown in grocery and essentials sales likely reflects lower online availability as well as shoppers easing up on panic buying. The shift to e-commerce has been a mixed bag for the company's other categories. Home décor sales have increased in the "high teens" percentage-wise in April after seeing single-digit declines in March, while apparel and accessories sales have dropped 40% in April following a 30% slide in March.

Cornell noted in a statement that Target is seeing "broad market-share gains across each of our core categories." The company pulled its guidance for the first quarter and full year in late March.

"We are spending a lot of time trying to understand how the pandemic is going to change the future of how American consumers shop, how they live, how they work, the things that they value," Cornell noted in an interview with CNBC on Thursday. "But it's been really hard to predict week by week."

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