Nation & World

Stores-as-hubs strategy pays off: Target sees largest sales bump since 2005

Minneapolis Star Tribune/TNS

An Target employee carries an order to the new drive-up station outside the Apple Valley, Minn., store.
Minneapolis Star Tribune/TNS An Target employee carries an order to the new drive-up station outside the Apple Valley, Minn., store.
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MINNEAPOLIS — Target is embracing the blur — and it paid off in its best full-year sales growth since 2005.

The blur is the way America shops these days. Sometimes we walk the aisles of a store, sometimes we shop online. We get things shipped to our homes or decide we can’t wait that long and drive to the store and pick it up ourselves.

Target now offers at least seven ways to shop, including same-day delivery and curbside pickup — all of it has boosted sales and traffic at its stores and online.

The Minneapolis-based retailer saw comparable store sales grow 5.3 percent during the vital fourth-quarter holiday shopping period, according to fiscal year-end results released on Tuesday.

The broad array of options helped the retailer gain market share in every major category — apparel, home, toys and entertainment, beauty and grocery.

“Our stores-as-hubs strategy isn’t putting our core business at risk,” Target Chief Operating Officer John Mulligan told investors gathered at an annual meeting in New York City. “It’s simply helping us grow faster.”

Two years ago, investors weren’t so sure. CEO Brian Cornell had stood on the same stage and laid out a three-year plan to spend $7 billion, plus $1 billion in annual operating profits, to overhaul stores, update supply-chain technology and prepare for the digital age.

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Consumers were starting to shop differently, he said, and the company wasn’t moving fast enough. Investors sent the stock price tumbling, at a time when Amazon was grabbing market share and retailers were closing stores to invest in digital sales.

By turning its stores into mini-shipping centers, executives said the retailer was able to fulfill online orders at least a full day faster than when relying on distribution centers, which often are located on the outskirts of population centers.

More than 400 stores have undergone end-to-end transformations, with another 300 on the docket each of the next two years. The strategy enables the retailer to spend less on freight and other fulfillment costs, averting $2.5 billion in new warehouse costs, according to the company.

Digital sales, which include those from target.com and a mobile shopping app, accounted for about 10 percent of overall sales during the fourth quarter, a boost of 31 percent. Stores fulfilled nearly three-quarters of those orders.

Shipping directly from stores costs 50 percent less on an average unit than shipping from a warehouse. When customers come to the stores to pick up their online orders — the click-and-collect option — it slashes the cost more.

A relatively new store drive-up option, in which Target employees deliver online purchases directly to shoppers’ cars, quickly went from a small pilot project in the Twin Cities to a coast-to-coast option at more than 1,000 stores before the holiday season.

Executives said it has been one of the most popular services for consumers and highly profitable for the company.

“The convergence between physical and digital has come full circle,” Cornell told investors on Tuesday.

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