Stimulus Not the Only Driver of 'Surprising' Store Sales Strength: Target CEO

Target continues to see “surprising strength in stores” and “much more optimism” from consumers as COVID-19 vaccines are more broadly distributed, but it would be “false precision for us to apply any type of growth factor to stimulus in an environment that’s so rapidly changing,” said CEO Brian Cornell on a Thursday investor call.

In the current environment, it’s difficult to “tease out stimulus from what’s happening as people return to work,” as vaccine-driven confidence grows and as consumers are getting back to “some level of normal life,” said Cornell. “It’s really hard in our business to determine how much of the results we’ve been driving were driven by stimulus vs. our strategy, our investments in our stores," digital fulfillment categories, and the trust Target built with customers with in-store safety during the pandemic, he said.

Target continues to see strength across categories that benefited from stay-at-home trends during the pandemic: food and beverage, household, health and beauty, electronics, home office supplies, kitchen and cooking, Cornell said. In addition to growth in electronics and “all things office,” Target gained share in apparel, beauty and household essentials, Cornell said. Positive results across all categories shows Target is “becoming more and more of a destination” for consumers who are consolidating the number of places they shop, a trend Cornell thinks will continue. He credited the “ease and convenience” of Target's shopping and fulfillment options: in store, e-commerce, curbside pickup and same-day delivery through Shipt.

Chief Financial Officer Michael Fiddelke cited Target’s market share gains last year as the top indicator of the company’s results, saying the consistency of share performance across categories, geographies and time frames was “remarkable.” Target picked up $9 billion in market share last year across its five major categories, said Cornell, saying market share gains tend to be “sticky.”

Chief Operating Officer John Mulligan called Target’s combination of drive-up and in-store shopping the retailer’s “secret weapon.” Choices simplify shopping for customers and make it easier to buy things “you don’t want to spend a lot of time in store for,” such as a case of water or 50-pound bag of dog food. “We’ll take out a lot of the effort for you."

Target is looking at new prototypes, including what the store of the future should look like, said Mulligan. The retailer will test a couple of those next year, which will inform plans, he said. Target ratcheted back its remodel plans last year due to the pandemic; it plans 130-150 remodels this year before getting back “on pace” in 2022 and 2023 with 250 store overhauls each year.

A major part of Target's capital expenditures will focus on restructuring the fulfillment model based on the success of the drive-up business, said Mulligan. “We want to make sure there’s significant capacity there for drive-up,” including the food business, he said. The retailer is planning remodels for more than 1,000 stores over the next three years. It’s also focusing on “different formats,” including small-footprint stores in urban areas and some larger locations previously occupied by other retailers, he said.

Larger, 80,000-square-foot spaces will include some 35,000 square feet of “front-end” shopping space that looks like a typical Target store, plus back-end space for fulfillment capabilities, said Mulligan. Cornell said Target is just “halfway through” its remodel plans and has the capacity to support expected growth in same-day services. Some stores could be used as sorting centers.

Stores generated 80% of Target sales last year, said Cornell, saying that in its mix of digital and physical store business, “it’s not an either/or; it’s an and.” Customers are “just shopping at Target.” Some days that’s in store, others it's a Shipt same-day delivery, and other days customers opt for curbside pickup, he said. “Stores still matter,” said Cornell: “We’re well-positioned to fulfill guests’ needs no matter how they want to shop in the future.”