Target’s Digital Sales Slowdown Disappoints Investors

November 18, 2015, 9:20 PM UTC
Inside A Target Corp. Store Ahead Of Earnings Figures
Shopping carts are seen at a Target Corp. retail location in Seattle, Washington, U.S., on Thursday, May 14, 2015. Target Corp. is set to release earnings reports this week. Photographer: David Ryder/Bloomberg
Photograph by David Ryder — Bloomberg via Getty Images

Earlier this year, Target (TGT) CEO Brian Cornell told Wall Street he would spend as much money this year on improving the discount retailer’s e-commerce backbone as on all of its 1,800 or so stores.

By allocating about $1 billion to each of those sides of the business, Cornell sought to convince investors that Target was making e-commerce a priority as it fights with (AMZN), Walmart (WMT), and, frankly, any retailer for customers’ business.

Target executives also told analysts in March that the company expected digital sales to grow 40% this year. It hasn’t turned out that way.

When the company reported on Wednesday that e-commerce sales grew a mere 20% in the three months ending on Oct. 31, the bad news prompted a sell-off in shares, sending Target stock down by almost 5%. (Not only was that below the 40% goal, it was also below the 30% performance for the quarter Target had forecast only three months ago.)

Target’s sluggish e-commerce numbers echo the tepid performance at Wal-Mart Stores last quarter, where digital sales rose 10%, their lowest rate of increase in memory.

In contrast to these two brick-and-mortar giants, Amazon reported a 23% jump in sales, raising questions as to whether the legacy players can bridge the gap with their online rival.

Cornell conceded that Target’s e-commerce performance was disappointing, and he pointed to a drop in electronics and apparel sales as causes. But he also suggested that could use additional improvements.

“We believe we have an opportunity to accelerate digital transactions by enhancing the experience on,” Cornell told Wall Street analysts on a conference call.

That is one of the reasons Target waived the $25 minimum threshold for online orders for the holiday season, unlike Walmart, which maintained its order minimum. Target is now using some 460 stores to ship and help speed up delivery of online orders. And it has deployed beacons at 50 stores to help it personalize offers made to customers while they are shopping.

In September, executives admitted that Target’s tech systems weren’t up to snuff to support its big ambitions. The system should allow a store worker to seamlessly and accurately find a piece of inventory in the system, and cash registers shouldn’t freeze.

While Target, which as recently as four years ago had Amazon run its website, has made big strides in e-commerce, digital sales still only account for 3.4% of total sales, according to eMarketer. So it is easy to see why investors are nervous that its e-commerce growth is slowing already.

Still, some other key areas of Cornell’s strategy have yielded a lot of success.

Target has stopped trying to compete so directly with Walmart as a general merchandiser and is picking its battles, specifically in categories like clothing and home goods, baby and kid’s items, and active and wellness products, segments Cornell has repeatedly said he wants Target to own. Comparable sales last quarter rose 2.5 times faster than Target’s overall 1.9% clip, beating Wall Street expectations by a hair.

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