Retailers

Target: Riding High on the Power of 'And'

'Guests turn to Target because of our stores and our digital options, not one vs. the other,' CEO Cornell says
Target CEO Brian Cornell with team members, holidays 2019
Photograph courtesy of Target

"Astounding," "remarkable" and "dominant" were among the superlatives Target executives used in describing what was, by any measure, an exceedingly strong first quarter for the Minneapolis-based retailer. 

Target's comp-store sales were up 22.9% in the first fiscal quarter that ended May 1, and operating income was up 407% to $2.4 billion.

In addition, the company realized more than $1 billion in market-share gain during the first quarter. Target Chairman and CEO Brian Cornell said in the company's earnings call that the gain demonstrates "how relevant guests find our shopping experience." 

That relevance, Cornell and Target Chief Growth Officer Christina Hennington said, derives from Target's focus on "and"—on being a trusted option for customers when convenience is paramount, via the company's same-day pickup and delivery options, and by providing an in-store experience that customers want to return to

"Guests turn to Target because of our stores and our digital options, not one vs. the other," Cornell said.

Harrington echoed the sentiment. "We can welcome [guests] back into our stores and continue to serve them with the same-day services they’ve tried and continue to love," she said. 

While Target has seen "an enthusiastic return to in-store shopping," Cornell said, with higher traffic accounting for the vast majority of the company's 18% growth in store comp sales, online sales more than held their own in the quarter: Digital comp sales were up 50%.

Same-day services—in-store pickup, Drive Up and delivery via Shipt—grew more than 90%, with Drive Up continuing to lead the same-day way for Target, climbing 123% for the quarter after expanding 600% in the first quarter of 2020 and 500% in the second half of the year.

"We expect those services to be very sticky over time," Cornell said, especially ahead of holiday celebrations and seasonal events (e.g., back to school) where consumers need to get in-demand items quickly and may seek to avoid in-store crowds. 

Both Target and Walmart, which also reported better-than-expected quarterly earnings this week, are expecting to see big customer spending around holidays in the second half of the year, with excitement about a return to in-person gatherings—whether 4th of July barbecues or Halloween parties—spurring higher sales following 2020's subdued celebrations.

Happier holidays could provide further lift to Target's growing  roster of private-label brands, which saw sales climb approximately 36% in the first fiscal quarter. Target's own brands are "not something [guests] pick up while they shop at Target; they’re a big reason why they shop at Target," Harrington said.

Whether customers are shopping online or in-store on a given day, continuing to deliver a satisfactory guest experience will hinge in no small part on investments the company is making in team-member training and operational efficiency, Target executives said. 

"There's no doubt we have the best team in retail," Chief Operating Officer John Mulligan said. New training for team members focuses on "consistency of store interactions" and enabling team members to better answer questions and solve problems for guests in the moment, he said. In addition, to enhance the Drive Up experience for guests and the team members tasked with running orders out to cars, some stores are adding more refrigerators and freezers at the front end of the store (not customer-facing) and moving or expanding designated Drive Up parking areas.

Ensuring that team members feel safe, engaged and invested in yields its own dividends, Mulligan said.

"Our thought has always been that the best way to staff our stores and our supply chain is to limit turnover," Mulligan said in a Q&A. Amid investment in wages (Target boosted its starting wage to $15 an hour in July 2020), benefits and training, turnover is down significantly from 2019, he reported.

"And as turnover decreases, you get so many benefits, right?" he added. "We get team members that know their jobs. We get team members that know their guests that are in their stores because they're in there weekly. They can engage with them. And this kind of gets to the service model where the idea is to engage with our guests, make them feel welcomed."

"The first quarter felt like a first step toward a post-pandemic world," Cornell said. And with guests flocking back to stores, company leadership indicated, the challenge now is to deliver an even better Target run than they remembered.

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