Target Joins Walmart In Pushing Back Against Amazon, Changing Retailing

Target joined Walmart this week reporting strong sales, driven by same-day fulfillment. Online sales leaped 34% during the quarter.

Last week, Walmart reported a 2.8% jump in same-store sales and a 37% jump in on-line sales for the fiscal second quarter.

All in all, Target has reported nine consecutive quarters of positive sales results. Walmart has done even better with 19 quarters of positive results.

“Much more surprising than Target’s modest comp and total revenue beats (which were in-line with our model) were the material positive inflection in both gross margins (up 32 bps) and EBIT margins (up 80 bps) both representing the first time these metrics had improved after more than two years of quarterly declines each quarter,” says retail equity analyst John Zolidis.

This means the pushback strategies the two brick-and-mortar retailers launched a few years ago against Amazon are beginning to pay off. “We see the ongoing comp and traffic gains (9th quarter in a row of positive results) and contribution from digital (34%) as well as expanded fulfillment options (BOGO, etc.) as demonstrating that TGT’s investment in product, merchandising and technology are working in an environment with signification share dislocation due to closed and closing failed retailers,” says Zolidis.

Target and Walmart investments in product and merchandise technology have changed the rules of the game in retailing, by merging in-store and on-line sales.

“Target has realized that its brick-and-mortar stores can enhance customer experience by adding convenient fulfillment options and truly creating a rich, virtual-to-reality path. They have smartly utilized Shipt, curbside pickup and other same-day options to draw in more customers, which drove three quarters of their 34% digital channel sales growth,” says Mousumi Behari, Digital Strategy Practice Lead, Avionos.  ”Additionally, Target has invested in not only remodeling its existing stores, but creating small format locations in densely populated areas such as New York to meet customers where they are. In doing so, Target has stayed in step with Amazon and growing customer expectations for quick delivery options. “

Shoppers are placing orders online and are picking-up merchandise at neighborhood stores, saving time and avoiding shipping fees.

That’s especially the case for groceries, where speed of delivery is a crucial factor in maintaining freshness.

The merging of online retailing with traditional retailing has provided an advantage to retailers with extensive neighborhood store presence like Walmart and Target.

According to Stanley Philipose 1^st, author of the book Retail Apocalypse; The Death of Malls, Retailers, & Jobs, “The retail industry is in a state of consolidation. Apart from e-commerce giant, Amazon, the other winners are retailers like Walmart that excel in categories that are resilient from e-commerce such as grocery and home improvement. With customers regularly visiting their stores, Target and Walmart are able to cross-sell other product categories. They offer convenience and value. As a result, some specialty retailers are struggling.”

Then there are pick-up points to enhance speed and convenience for on-line orders. “Target attributed much of its success this quarter to strides in in-store and curbside pickup as well as same-day delivery,” says Darin Archer, Chief Strategy Officer at Elastic Path.

That shouldn’t have come as a surprise,  according to Archer. Research by Elastic Path indicates that service is an important part of consumer shopping experience. “In the next year, 75% of consumers expect same-day delivery from all brands, while 72% expect curbside pickup,”adds Archer. “Target’s big differentiator against Amazon is their physical presence, especially in suburban areas.”

Curbside pick-up is an important for parents with little children, according to Archer, too. “As a parent with small children I certainly use the pick-up in store option, as I don’t need to get the kids out of the car to pick up a few essentials, he says. “Knowing that convenience is a massive motivator for consumers, Target’s been making some really smart investments in bringing the realms of physical retail, online shopping and fulfillment together rather than running for the hills away from brick and mortar and giving up its biggest advantage over Amazon.”

While it’s still unclear whether Target and Walmart will eventually managed to beat Amazon one day, one thing is clear: they are changing the retailing game.