Target’s Digital Growth Tempers In Q3

It’s not quite as bad to be a big-box retailer as some mainstream media headlines would suggest. After all, Walmart‘s better-than-expected sales topped expectations and so did Target’s.

The latter retailer posted its third-quarter earnings today (Nov. 18), and while its sales are rising — they are not doing so at the expected rate. Target is also seeing a slowdown in the rate of growth for its digital sales.

Overall, however, Target posted a strong earnings report, with a profit of $549 million for the quarter, and a 2 percent revenue increase to $17.61 billion. Still, shares fell 4.3 percent yesterday on the lukewarm results for the retailer.

Sales for the quarter grew 1.9 percent, which was in line with company expectations. Traffic growth was small, but still up by 1.4 percent. Where Target is seeing its strongest growth rate is in its signature categories (style, baby, kids and wellness), which is growing 2.5 percent faster than the company average.

Digital sales grew 20 percent in the quarter, but this was down from what Target had forecasted in growth, which was 30 percent. Missing its own expectations also likely led to the stock dip.

During Target’s earnings call with analysts, CEO Brian Cornell noted that Target is “significantly outpacing the industry,” but acknowledged its digital growth is not what the company expects. He cited electronics as being one area that’s not growing as fast online. The warm weather has also contributed to slower sales, he said, as fewer consumers are rushing out for new seasonal gear.

Still, Target is focused on continuing to overhaul its digital side to deliver the experience guests want.

“We know that our digital investments drive engagement and sales in all of our channels. And we are pleased that our third quarter sales were near the high end of our expectations. However, we believe we have an opportunity to accelerate digital transactions by enhancing the experience on Target.com,” he said during the call.

He also indicated that regardless of where a sale is completed, the number of purchases that are spurred from digital interaction is continuing to increase through its digital efforts. Target has been particularly focused on providing a digital experience, but in-store.

“We know the vast majority of our sales in all of our channels are digitally enabled. For example, our guests access our brands through a digital device, both in advanced hub and during their trip to one of our stores. As a result, we don’t think that digital is simply a selling channel, but a critical enabler of the shopping experience in all of our channels,” Cornell said.

Other key figures he shared during the call were things like: The percent of digital orders delivered in a three-day window has more than doubled compared to a year ago. Speeding up shipping times has also helped Target hit its digital goals, which include quickly and efficiently delivering orders out to a majority of its guests (two-thirds received orders in just three business days).

“We recently expanded our ship-from-store capability to more than 300 additional stores, bringing the total to more than a quarter of the chain. This will enable about 40 percent of digital transactions to be shipped from our stores in the fourth quarter. In addition, two new direct-to-guest fulfillment centers became operational in the third quarter, in advance of the holiday season. With the expanded capacity these changes provide, we expect to continue making progress on shipping speed next year,” Cornell said about the logistical side of its eCommerce business.