Digital and brick-and-mortar sales
Target (TGT) reported ~$2.5 billion in e-commerce sales (FXD) in fiscal 2016. This represented 3.4% of the retailer’s total revenue. Digital sales rose 31% year-over-year (or YoY), faster than the growth rate of overall US e-commerce sales, which rose 14.6% YoY in 2015 and 15.4% YoY in 2014.
Target’s strong performance is due to its omni-channel model, which leverages both its brick-and-mortar store network and its online infrastructure. According to Target, around 75% of its customers start shopping on mobile devices. However, brick-and-mortar stores account for over 90% of the retailer’s sales.
Enhanced fulfillment options
Target’s omni-channel model also provides the retailer with enhanced fulfillment options such as ship-from-store and store pickup, consequently spurring the above-average growth rate in its web sales. The company now offers the ship-from-store fulfillment option from over 460 stores, roughly one-fourth of its store count of 1,792.
In-store pickups of online orders rose 60% YoY in fiscal 2016, about twice the rate of Target’s overall growth in web sales. Around 30% of the retailer’s web sales were fulfilled via physical stores, including about 50% of its online electronics sales.
A larger number of product SKUs (stock keeping units) are available on the company’s web store, providing customers with more product options online compared to in stores.
In contrast, Walmart’s (WMT) e-commerce sales rose 12.3% YoY in constant currency terms to $13.7 billion in fiscal 2016. Amazon (AMZN) reported revenue growth of 20.2% YoY in 2015, with total revenue coming in at ~$107 billion. Alibaba’s (BABA) revenue rose 45.1% YoY to $76.2 billion in 2015.
However, both Target and Walmart fell short of their respective projections from the start of the year. While Walmart had projected growth of 20%–30% in the e-commerce channel, Target’s guidance indicated a 40% YoY growth rate in digital sales.
Despite these misses, expectations from the digital business are robust. Target is looking at boosting its infrastructure to enable a smoother flow of web traffic. On Cyber Monday in 2015, the retailer experienced higher-than-anticipated web traffic. The retailer is also ironing out its supply chain. We’ll take a look at this in the next article.