For a retailer that has invested billions in its e-commerce, Target (TGT) sure is raising its bet on its physical stores.
The discount chain’s rationale is that stores are now essential nodes in its e-commerce distribution network, key to getting items into customers’ hands more quickly. What’s more, the company says, its newer, smaller format is allowing Target to get to a new set of customers and such stores are turning out to be much more productive that other stores in its 1,800-store fleet.
So at a media event on Thursday to promote that latest urban small-format Target store to open, a 43,000 square-foot location in New York City, across the street from Macy’s (M) iconic Manhattan flagship, Target CEO Brian Cornell said the retailer would drastically increase the number of store remodels it is undertaking and also more than double the number of smaller Target stores within three years.
The new Target store in midtown Manhattan will offer same-day delivery, as will three other New York area stores following a recent test at a store in the Tribeca neighborhood. The company is also testing having customers drive up to a store to retrieve an online order. These are manifestations of Target’s efforts to have stores and e-commerce be fully merged and have stores act as a new point of distribution and collection.
“Our online growth is being enabled by our stores,” Cornell told Fortune and other publications at a briefing in the new store. Last quarter, its digital sales rose 32%, a major re-acceleration after previous quarters.
But the company cannot sit on its laurels given growth rates of 60% at arch-rival Walmart.com (WMT) and Amazon.com’s (AMZN) growing physical presence following its acquisition of Whole Foods and new collaboration with Kohl’s. (KSS).
In February, Target announced it would remodel 600 stores as part of a $7 billion, multi-year effort to reinvent its business. On Thursday, Cornell said Target was raising that to 1,000 stores (it has about 1,800 in all) that would get the treatment, which includes things like much better fixtures to display clothes and a more attractive presentation for food. Such stores are seeing sales rise 2% to 4%, better than the chainwide average, which was 1.3% last quarter.
As for the smaller urban stores, in addition to helping Target speed up delivery, they yield sales per square that Cornell said were “easily” twice those of its larger stores, meaning about $500 per square foot, making those Target stores comparable to high end department stores by that metric. (Still there are additional costs involved because of the greater frequency of deliveries.)
Target has just over 50 now and plans to get to 130 such locations in 2019. According to eMarketer, Target’s overall sales per square foot are about $276. And these stores bring Target closer to many urban and college campus shoppers who eschew trips to the suburbs.
“Our goal is to get products into the guest’s (customer) hands in less than 48 hours,” Cornell said of Target’s efforts overall. That comes at a time its rivals are also working on radically accelerating delivery times.
As for the stores themselves, the new Manhattan store, which Cornell called “a symbol of Target’s future.” The location will go toe to toe with Macy’s and a nearby J.C. Penney (JCP) for tourists’ business and features local-flavored merchandise, such as New York themed plush toys of Target’s canine mascot, Bullseye.
The store also showcases the new apparel brands that Target is pushing heard as part of its work to refresh what had become a stale offering in some cases. Target has launched or relaunched seven brands so far this year with others in the pipeline, and had early success in some cases: its Cat & Jack line of clothes for kids is already a $2.1 billion brand one year in.
Last quarter, Target broke what had been a four-quarter streak of comparable sales declines. The turnaround, helped by some of these efforts, emboldened the company to step on the gas with its initiatives, its chief said.
“Guests are rewarding us with more traffic and we’re driving increased comparable-store sales,” Cornell told reporters. “It’s given us confidence to move forward aggressively.”