When Target released its Q2 2015 earnings report, shareholders were pleasantly surprised. The retailer surpassed Wall Street expectations and its own high-end forecast.
The second quarter wasn’t quite so kind to many of its competitors, and Target’s results offered retailers another cause for concern: The company’s e-commerce sales grew 30 percent year-over-year, accounting for 0.6 percent of its 2.4 percent growth for the quarter.
A retailer’s quarterly earnings report is just a summary of recent history in a constantly shifting landscape, of course, and it’s shaped by a variety of factors, not all of which are under the store’s control. Nevertheless, Target’s strong e-commerce performance is further evidence that giving consumers what they want can also give a retailer what it wants. The company’s actions over the last 14 months provide an informative outline for achieving online retail growth.
Target, like Walmart and other retailers, was slow to address the rise of e-commerce and is therefore trying to catch up to Amazon in the online marketplace. It started taking significant steps in that direction in June 2014 with its decision to offer free shipping on almost any purchase of $50 or more.Target also relaunched its apps for mobile and tablet users, speeding up shoppers’ checkout flows and enhancing their experiences with upgrades to the interactive store maps and shopping lists (not to mention ongoing updates to its popular Cartwheel app).Then, in October, it announced that online holiday shoppers would enjoy free shipping on every purchase, regardless of its size.
These initiatives helped Target reach new digital highs during the 2014 holiday season and record 4.1% growth in Q4 2014, including a 3.8 percent increase at comparable stores, with digital channels contributing 0.9 percent to that increase. Those results convinced Target in February to cut its free-shipping order threshold to $25 — below the $35 minimums at Best Buy and Amazon (for non-Prime shoppers), and half the $50 threshold then in place at Walmart.
In March, Target discussed its plans to emphasize its “signature categories” — apparel, home needs, babies’ and kids’ products, and health and wellness — and to invest $1 billion in technology. Highlighting its core products will help reinvigorate the old “Tar-zhay” brand, which consumers associated with affordable, high-quality items. Other product categories, including consumer electronics, were to be “repositioned to deliver a more compelling and appealing shopping experience,” said chairman/CEO Brian Cornell.
The financial commitment also includes developing tailored digital offers for individual shoppers. Online shoppers are used to seeing messages that address their specific needs and interests; continually meeting those expectations will require Target to keep collecting and analyzing reams of data on shoppers’ behaviors.
More recently, Target announced that it will be stepping up its ship-from-store services. By the 2015 holiday season, it plans to ship online orders from 450 stores, more than triple the 140 locations that currently serve fulfillment purposes. Target will use this capability to test “Available To Promise,” a pilot program intended to guarantee delivery within a short, specific timeframe.
The thread running through all of these efforts is Target’s laser-like focus on the needs and interests of its customers:
* Free shipping is now practically a prerequisite for completing online transactions, so Target offered unlimited free shipping over the holidays, then cut its year-round minimum in half.
* Online shoppers can usually find better deals on virtually anything; by concentrating on core categories, Target is offering them a central hub for savings on popular home and family needs.
* Consumers expect personalized attention and multiple online shopping options, so Target is devoting considerable resources to omnichannel optimization.
* Since online delivery times can be frustratingly inconsistent, Target is trying to hone its inventory flows and develop a program that promises guaranteed delivery dates.
Target is implementing a well-designed strategy to attract and retain consumers, both online and off. Its recent earnings report is proof that satisfying customers can also satisfy shareholders. While past performance doesn’t guarantee future returns, giving online shoppers greater ease, convenience, savings and confidence is often a formula for success.
Tom Caporaso is the CEO of Clarus Commerce, a provider of e-commerce and subscription commerce solutions. Among its properties, Clarus Commerce powers FreeShipping.com, the pioneer of the pre-paid shipping and cashback movement, and also customizes and manages programs for clients across a wide range of industries, including Return Saver, which it co-developed with FedEx, and 2-Day Shipping by MasterCard.
