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Target's (TGT) Digitization Endeavors Help Win Customers

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Discount stores dealing in essentials and other household needs have emerged as favorite shopping destinations for customers amid the pandemic. Evidently, Target Corporation (TGT - Free Report) has been benefiting from coronavirus-induced spike in demand, courtesy of its better pricing, private label offerings, effective inventory management, and merchandise initiatives. Certainly, the company’s differentiated product range resonates well with customers’ spending habits.

This general merchandise retailer has been also making investments to enhance omni-channel capacities, come up with new brands, and remodel or refurbish stores in the wake of rising competition from Amazon (AMZN - Free Report) , Kroger (KR - Free Report) and Walmart (WMT - Free Report) . Undoubtedly, Target is leaving no stone unturned to improve top-line performance and expand customer base.

Let’s Introspect

Keeping in mind consumers’ product preferences and growing inclination toward online shopping, owing to social distancing and greater stay at-home trends, discount players have been replenishing shelves with in-demand merchandise, and expanding delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions. Markedly, Target has been aggressively adopting strategies and making planned investments to cater to consumer demand and behavior in the new normal.

Target witnessed sturdy market-share gains in all five core merchandise categories during third-quarter fiscal 2020 owing to strong demand. While Electronics surged more than 50%, comparable sales in Apparel category rose nearly 10% in the quarter. Home registered comparable-sales growth in the mid-20% range. Essentials & Beauty and Food & Beverage witnessed broad-based growth in the high teens.



We note that stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) surged 217%. Sales fulfilled by Shipt were up nearly 280% year over year and sales through Drive-Up increased more than 500% during the quarter under review. Order Pickup rose more than 50% in the quarter.

Meanwhile, comparable sales for the quarter increased 20.7%, backed by 15.6% jump in average ticket as consumers consolidated trips amid the pandemic. Comparable traffic grew 4.5%. Digital comparable sales soared 155% and added 10.9 percentage points to comparable sales. Comparable stores sales grew 9.9% during the quarter.

Wrapping Up

That said, we believe that Target has carved out a niche in this ultra-competitive retail landscape, and is rapidly adapting to the growing digital ecosystem. The strategy to sell products at discounted prices has helped the retailer draw customers, who have been seeking both value and convenience amid the pandemic. Shares of this Zacks Rank #1 (Strong Buy) company have increased 63.1% in the past six months compared with the industry’s rally of 30.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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