Target Hits the Bullseye, Again

Target Hits the Bullseye, Again

The Minneapolis retailer has surpassed Wall Street expectations in the second quarter, even as its peers continue to struggle. What is Target doing right?

There’s no sugar-coating it: Brick-and-mortar retail is suffering.

So far this year, the number of closed stores is already 29 percent higher than it was in all of 2018, according to data compiled by marketing research firm Coresight Research.

For some observers, it’s yet another sign of the “retail apocalypse.”

Despite the grim outlook, Target Corp. is quietly raking in profit. On Tuesday, the Minneapolis retailer reported second-quarter net earnings of $938 million, marking a more than 17 percent increase over the same period last year.

Target’s revenue also grew 3.6 percent to $18.4 billion. The retailer’s earnings and revenue exceeded Wall Street expectations, CNBC reported.

On Wednesday, the retailer’s shares reportedly traded at a record $103, according to CNBC. Target’s second-quarter results follow a similarly solid performance in the first quarter. The retailer logged the gains even after its register kerfuffle over Father’s Day weekend.

Target has been able to withstand the turbulence in the retail industry by focusing on physical stores and expanding its online presence, says Brian Yarbrough, a consumer retail analyst with Edward Jones.

“They’re investing in stores. They’re remodeling stores. They’re investing online,” he says.

Though Target’s digital sales soared 34 percent in the second quarter, in-store sales are still hugely important. According to the company’s second-quarter earnings report, more than 92.7 percent of Target’s sales originated in stores.

But that’s not to say that the retailer has abandoned its digital efforts. Yarbrough notes that Target has expanded services like curbside pick-up and same-day delivery.

“These things are conveniences for the consumer, and that’s what the consumer is looking for today,” he says.

Target’s financial performance runs in stark contrast to mall-based retailers like Macy’s, Nordstrom, and J.C. Penney. For instance, Macy’s second-quarter income fell to $86 million, down from $166 million in the same quarter in 2018.

Generally speaking, “off-mall” brands – the Targets and Walmarts of the world, for example – have been performing better than those in malls. Before the advent of online shopping, some mall-based brands simply opened “way too many stores,” Yarbrough says. That decision has been hurting them as foot traffic in malls continues to decline.

In some ways, the upheaval in the retail industry may benefit Target, for now.

“All these store closings drive business to Target,” says Kim Sovell, an adjunct instructor in the Opus College of Business at University of St. Thomas. “When you have all these store closings of big department stores like Sears and Herbergers, those shoppers have to find where else to purchase items.”

In her view, Target has also done a good job of tracking customer analytics and data.

“This is a culmination of a tremendous amount of thought, of listening to consumers,” she says.

And there may be a few factors behind Target’s success. For instance, the retailer has added more than a dozen private-label brands – products that can only be purchased at Target.

“That’s key because you can’t go to another retailer – including Amazon – and get those private-label brands,” Yarbrough says. “I think if you have a strong private-label brand program, that helps you lock in customer loyalty.”

Of course, the specter of the U.S. trade war with China continues to haunt retailers everywhere. In a Tuesday conference call with analysts, Target CEO Brian Cornell said the current trade situation presents an “additional layer of uncertainty and complexity as we plan our business.”

But Target has taken some proactive measures like pre-buying many goods from overseas or finding other sources, Sovell says.

“Target has been preparing for these tariffs,” she says.