Target on Tuesday reported that comparable sales grew 3.4% in November and December, posting gains across all of its core merchandise categories. Comparable sales in the fourth quarter (to be reported on March 6) are expected to rise by the same amount and by 1% year over year, according to a company press release.
Digital sales are expected to grow by more than 25% in 2017 and the company anticipates comparable sales will rise by low single digits in 2018 thanks to the rollout of more exclusive brands and increased investment in digital operations, the company said.
In a Q&A posted to the company's Bullseye blog Tuesday, CEO Brian Cornell credited the company's $7 billion investment in its stores last year with spurring digital growth. "Our stores fulfilled more than 70% of Target's digital volume in November and December through Order Pickup and by shipping items directly to guests — that means stores enabled approximately 80% of our sales growth in that period," he said.
By all means, Target had a stellar year, not to mention a cheery holiday season, for a mass merchant still very much in the turnaround phase. In the first quarter of 2017, the company finally pulled itself out of a string of disappointing quarterly earnings reports dating back to 2015 and its rise has stabilized moving into the new year.
The company's holiday report fell right in line with expectations from Moody's Investors Service. "[W]e continue to believe that its short-term investments in stores and online capability will generate longer-term benefits, which is borne out by these results," Moody's Lead Retail Analyst Charlie O'Shea said in a statement emailed to Retail Dive. "The continued leveraging of the store base to facilitate online shopping is a key component of this strategy, and the level of store fulfillment of online orders for holiday is impressive."
In the home category, the new Hearth & Hand with Magnolia brand, co-designed with "Fixer Upper" stars Chip and Joanna Gaines in November, was a big seller over the holidays, Cornell said, and Beauty and Food & Beverage categories were also strong, driven in part by candy, snacks and alcohol.
That said, Target was expected to do well at this point, and there are some missteps it could have avoided, Neil Saunders, managing director of GlobalData Retail, said in a statement emailed to Retail Dive. "[T]he growth does indicate that Target is on the right track and that its various ventures are starting to pay dividends. However, we believe that it also highlights some deficiencies in execution — especially in stores," he said.
While a slew of new private label brands across its assortment have proven a compelling differentiator, their impact was minimized by poor merchandising and display, he said, adding that it reduced conversions and sales.
"Target's holiday focused Wondershop is another example of a lost opportunity. Like last year, Target's range of holiday decorations and sundries was comprehensive and, in our view, one of the best in the market," he said. "However, also like last year, Target buried this offer at the back of the store and, as a consequence, lost [customers]."
In food — a category the company has struggled with for years — performance was "reasonable," Saunders said. "Our data suggest that sales growth was supported by lower price points. However, seemingly little effort was made to push holiday food and drink, especially at the premium end of the offer," he said. "In our view, Target's holiday food proposition was extremely lackluster compared to competitors."
On the digital front — one of Cornell's biggest priorities — the company is gaining traction and it's using stores to do it. In order for that strategy to work though, the company needs to make stores more compelling, Saunders said. Target is still in the midst of a multi-year plan to overhaul existing stores and build out new small-format locations.
In 2018, Cornell said he's most looking forward to scaling same-day delivery services, thanks to the recent acquisition of Shipt, and the construction of 30 more small-format stores. The company plans to remodel 325 stores this year and more than 1,000 stores by 2020.