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Target’s Digital Initiatives Could Help Its Sales Growth

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Digital sales support comps growth

Target (TGT) expanded its digital offerings, which helped it post impressive comps growth in the past several quarters. Target’s digital sales accelerated in 2018. The company’s e-commerce sales rose 28.0% in the first quarter, 41.0% in the second quarter, and 49.0% in the third quarter. Target’s comps increased 5.1% in the third quarter, which reflected a 1.9% contribution from its e-commerce sales.

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At the end of the third quarter, Target expanded its same-day delivery through Shipt to ~1,400 stores across 25 markets. The company’s drive-up services were offered in ~1,000 stores. Target’s ship-from-store and Restock services are also witnessed increased demand. The company expanded these services to newer markets.

Outlook

We expect Target to sustain the momentum in its sales in the coming quarters due to expanded digital fulfillment options, exclusive brand launches, stores remodeling, and value pricing. However, the growth rate will likely decelerate in 2019 because the company faces tough YoY (year-over-year) comparisons.

More competition from Walmart (WMT) and Amazon (AMZN) could limit the growth rate. Walmart is leaving no stone unturned to boost its digital offerings and drive its traffic. Walmart is acquiring in-demand online retailers to fortify its digital offerings and gain category expertise. Walmart’s online grocery pickup service, which is immensely popular among shoppers, expanded to ~2,100 stores.

We expect Target and Walmart to continue to drive traffic in the coming quarters. Costco (COST) is expected to continue to drive its industry-leading comps growth due to its expanded offerings, price investments, and high membership renewal rate.

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