Target has spent much of the past year focused on growing its mobile and digital presence with new features and app enhancements, combined with an emphasis on core product categories. It's a year that is now bearing fruit.
Sales for the second quarter that ended Aug. 1 increased 2.8 percent to $17 billion, comparable-store sales grew 2.4 percent and sales from Target's digital channels grew 30 percent.
Management's focus on core categories and competencies is working. Comp-store sales in signature categories grew more than 7 percent in the second quarter, three times that of Target's overall comp growth, according to Target's CEO Brian Cornell. Signature categories—home, apparel, baby and kids—are also experiencing strong digital growth. Approximately 80 percent of Target's digital channel sales growth in the second quarter was driven by home and apparel.
Becoming a leader in digital channels (including mobile) is a strategic priority, one laid out last fall as Target embarked on its transformation. Part of that strategy is making mobile Target's front door through the development of strong apps. Research shows that app users visit stores more frequently and stay longer.
"Guest research shows that digital relevance drives traffic and engagement across all selling channels," Cornell said during a conference call with analysts. "While we're pleased with the industry leading growth we've seen so far this year, we have much more work to do and a key asset we'll deploy is our source. We're already shipping digital orders from approximately 140 stores, and by the end of this year we'll be shipping for more than 450 locations."
Mobile and digital are also helping Target reduce distribution costs, as Target is reducing investment in dedicated DCs and converting stores to act as fulfillment centers.
The focus on digital is twofold: online and mobile. But Target's industry leadership in mobile initiatives is helping buoy all digital initiatives, particularly those that offer personalization features.
Last year Target replaced a third-party recommendation engine with one developed internally. It incorporates both the online and in-store shopper history. This feature was expanded to mobile earlier this year and is driving "a meaningful increase in conversion compared with our results on the prior third-party product, generating incremental sales of $50 million to $100 million so far this year," Cornell told analysts.
Personalized recommendations were rolled out on the Cartwheel app in mid-summer, but early data indicates the change is driving more than a 10 percent increase in the number of offers downloaded per user, a critical measure of engagement with the app, he said.
It has been a year of change at Target, one that has produced results. "We continue to see really positive response to some of our efforts like Cartwheel," Cornell said. "Cartwheel has now been downloaded over 18 million times, and every time I am in stores, I run into guests that have their smartphone in their hand and they're looking for their offers from Cartwheel."
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