Target powers through a pandemic; 2020 sales growth explodes

NEW YORK (AP) — Target will plow USD4 billion into its business each year for the next several years to redo its stores, add new ones and speed up delivery as the discounter aims to keep up with increasingly demanding shoppers shaped by the pandemic.

As part of the investments announced on Tuesday, Target will accelerate the pace of building small-format stores, with plans to add 30 to 40 new stores this year, up from 29 last year. It also will step up the pace of its store remodel programme. It will remodel 150 stores this year, and then push that number to 200 remodels a year later.

But safety will remain top of mind even as the threat of COVID-19 should diminish with the vaccine rollout. The Minneapolis retailer said it will implement more contactless features from its restrooms to its checkouts and add distance between merchandise and at the checkout lanes.

The company is also testing a “merchandise sortation hub” in Minneapolis and will build five more this year. The hubs will help sort packages and speed up deliveries to customers ordering more online.

The capital investment is up 50 per cent from the previous year.

The moves come as Target extended its sales streak through the holiday quarter and sales grew by more than USD15 billion. That exceeded the company’s annual sales growth over the past 11 years combined.

With the habits of millions altered because of the spread of COVID-19, online sales last year surged by almost USD10 billion and Target made it increasingly easy to shop.

A customer carries his purchases as he leaves a Target store in New York. PHOTO: AP

Fourth-quarter profits soared 66 per cent and sales jumped 21 per cent, both topping Wall Street expectations.

Sales at stores opened at least a year rose 6.9 per cent compared with the same period last year. Online sales soared 118 per cent. Customer traffic in stores rose 3.7 per cent, and average dollars spent rose 15 per cent.

In the previous quarter, same-store sales rose 10 per cent, while online sales spiked 155 per cent.

Target picked up USD9 billion in market share from rivals in fiscal 2020.

Big-box stores including Home Depot, Lowe’s and Walmart all had huge fourth quarters with Americans still consolidating shopping trips.

Like all big-box stores, Target was allowed to stay open during the early onset of the pandemic last year, while department stores and mall-based retailers were forced to temporarily close because they were considered non-essential. That increased the dominance of Target and other discounters.

Kohl’s reported on Tuesday mixed results for its fiscal fourth quarter, delivering a 30 per cent increase in profits but a 10 per cent drop in sales while offering an upbeat outlook. Nordstrom’s online sales and off-price business helped power better-than-expected results, but it said on Tuesday that it’s dealing with inventory snags from the holiday season.

Target, which had already been expanding its delivery services before the pandemic, pushed even harder in that area. Same-day services such as picking up orders inside the store or at curbside, soared 212 per cent, led by drive-up service, which increased more than 500 per cent.

And its omnipresent store locations have been an advantage. More than 95 per cent of Target’s fourth-quarter sales were fulfilled by its own stores.

Target said shoppers who use those services are spending more. First-time users of Target’s drive-up service spent 30 per cent more on average, the company said.

“We placed the physical store more firmly at the centre of our omni-channel platform, and we created a durable sustainable and scalable business model that puts Target on a road of our own,” Target CEO Brian Cornell said during its annual analysts’ meeting.

Target’s push starting in 2016 to build its own store brands, including Cat & Jack and Goodfellow & Co, have also pulled in shoppers. Ten of its brands each generate USD1 billion or more, and four of those have crossed the USD2 billion, the company said.

During a call with reporters on Tuesday, Cornell said he believes that the focus on safety will be with its customers for years to come. But he noted Target is preparing for newly vaccinated shoppers to spend more time at its stores and thus buy more impulse items as well as shop for clothing and other items.

“We are seeing a hopeful consumer who is looking forward to life post-pandemic,” he added.

Target also announced a series of partnerships that should help drive more shoppers to its stores. Late last year, it signed a deal with beauty chain Ulta Beauty that will place Ulta shops in more than 100 Target stores by mid-2021. Overall sales in 2020 rose 19.8 per cent to USD92.4 billion, up from USD77.1 billion last year.

Target said net income rose to USD1.38 billion, or USD2.73 per share, in the fourth quarter, from USD834 million, or USD1.63 per share. Adjusted results were USD2.67 per share, which topped estimates of USD2.54 per share, according to FactSet.

Sales rose 21 per cent to USD28 billion for the quarter. Analysts were expecting USD27.4 billion.

The company did not provide a financial outlook due to uncertainty related to the pandemic. Target was among many that pulled back on guidance at the onset of the pandemic.

Target’s shares slipped more than six per cent, or USD12.60, to close at USD173.49. Kohl’s shares rose 36 cents to close at USD57.36. Nordstrom saw shares fall nearly two per cent, or 68 cents, to USD36.90 in after marketing trading after its earnings report.