Target, the country’s second-largest retailer, said on Tuesday (Mar. 2) that years of investment into its omnichannel capabilities drove record sales and earnings for the fourth quarter and full year, as pandemic-related shopping habits led to exponential increases in its digital and drive-up offerings.
Officially, the Minneapolis-based operator of nearly 1,900 stores said that its total revenue rose 21 percent for the holiday quarter, to a better-than-expected $28.3 billion. While Target’s in-store sales rose about 7 percent, its digital sales rose 118 percent and accounted for two-thirds of overall growth. At the same time, Target’s same-day pickup and delivery sales rose by more than 200 percent, led by a 500 percent increase in its new drive-up offering.
“Following years of investment to build a durable, scalable and sustainable business model, we saw record growth in 2020, as our guests turned to Target to safely provide for their families throughout the pandemic,” said Target Chairman and CEO Brian Cornell. “With the strength of our unique, multi-category assortment and the flexibility we offer through our reliable and convenient fulfillment options, we gained nearly $9 billion in market share in 2020 and grew our revenue by $15 billion, which is more than the 11 prior years combined.”
Put another way, Target said it grew more in 2020 alone than all of its cumulative growth since 2009.
That Guidance Problem
Like many of its mega-cap peers in retail and other industries, Target also chose not to give sales and earnings guidance for the current year, citing continued uncertainty surrounding the highly fluid and uncertain outlook for consumer shopping patterns and the impact of COVID-19.
Prior to the release of its latest financial results, two dozen analysts who follow the company were already projecting about a $3 billion or 3.2 percent year-on-year decline in total revenues for the current year.
Although Target is not giving a numerical forecast, it is giving a thematic plan, which includes continued investment in the business and its 350,000 employees as it looks to build on recent momentum and market share gains in all five of its main merchandise categories: beauty and household essentials, apparel and accessories, food and beverage, home furnishings, and hardlines (electronics, sporting goods and toys).
Target vs. Walmart
On a trailing basis, Target’s triple-digit digital sales growth and 21 percent total revenue gains easily eclipsed the respective 69 percent and 7 percent Q4 sales increases posted by Walmart.
Walmart did, however, provide guidance for low-single-digit sales growth, with flat to slightly increased operating income and earnings. The retailer also pledged to increase its capital investments by 20 percent to $14 billion.
Although Walmart still has more than twice as many U.S. stores and does more than four times the total sales as its smaller rival, on a pure stock performance basis over the past year, shares of Target rose 80 percent in 12 months versus a 22 percent gain for Walmart.
Both retailers’ huge brick-and-mortar footprints and their status as anchor-store mall tenants have been the source of criticism at a time when digital sales have become increasingly important. That said, as Walmart and Target ramp up and refine their multi-modal omnichannel services, the importance of owning hundreds of physical stores has been undergoing a re-think, as they now represent a critical infrastructure used in order fulfillment.
To that point, Target said that more than 95 percent of its fourth-quarter sales were fulfilled by its stores. “We did two things at once [in 2020]. We placed the physical store more firmly at the center of our omnichannel platform, and we created a durable, sustainable and scalable business model that puts Target on a road of our own,” Cornell said on the company’s earnings call. “Our team’s ability to act and react in 2020 was years in the making. Without our multi-year roadmap to develop new capabilities and bring them to scale, 2020 could have exposed essential gaps in our business model.”
Instead, Cornell added, the company’s strategy “proved beyond a doubt the durability of our model, and signaled our potential for continued growth in the years ahead.”
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