Target (NYSE:TGT) delivered more than items to your door or to you at the curb last year. The retailer also delivered major sales growth. As a matter of fact, sales growth surpassed that of the previous 11 years combined. Target’s investment in contactless delivery and pickup options and online sales had paid off. Customers favored both during the worst of the coronavirus crisis. And Target shares rose 38%, outperforming the S&P 500 Index.
After that, the big concern was that Target’s sales would stagnate once consumers returned to their usual routines. But that hasn’t happened. In the most recent quarter, Target’s sales climbed nearly 9%. And a 12.7% increase in traffic drove that gain. That’s led to strong share performance this year. Target’s already equaled last year’s percentage increase — up 38% to date. And the stock is on its way to beating the S&P 500 again. But can the trend continue? Yes, for three reasons.
1. Speed and efficiency
Earlier this year, Target said it would invest $4 billion annually to make itself bigger and better. That includes speeding up store openings and remodels. And importantly, it also includes strengthening its already strong fulfillment services. Target’s same-day services (order pickup, drive up, and Shipt) climbed 55% in the most recent quarter. Today, Target stores fulfill more than 95% of all orders — online and in-store.
The latest news should streamline things even further. The company is opening four new sortation centers nationwide this fall. This follows the opening of a pilot sortation center in Minneapolis last year. These centers sort packages for delivery to specific neighborhoods, which frees up store employees to prepare more orders, instead of sorting packages. All of this means a more efficient process for Target and quicker delivery to the customer. This should keep customers happy — and save Target time and money over the long term.
2. Billion-dollar owned brands
Target has become an expert at developing owned brands — more than 40. The company understands the details needed for success. For instance, my 10-year-old daughter will only wear Target’s Cat & Jack brand leggings because they don’t have scratchy tags. Cat & Jack is one of Target’s 10 billion-dollar owned brands.
Recently, the All in Motion activewear line became a billion-dollar brand. And that happened only a year after the All in Motion launch. Target considered comments from thousands of customers as it fine-tuned its All in Motion products. Target’s Good & Gather food brand is another example of one that made it to more than $1 billion in sales in about a year. With about 2,000 items, it’s Target’s biggest owned brand.
What’s next for owned brands? Target is launching Kindfull pet food. The company noted the increase in pet adoptions during the depths of the coronavirus crisis. And a study of Target’s customers offered valuable information: Most are pet parents and are looking for quality pet food at a good price.
3. Star-studded partnerships
Back in 2019, Target offered some customers a Disney experience as part of their regular Target run. The company partnered with Disney to open Disney Stores in some Target locations. Now, Target is tripling its Disney Store at Target locations. That means 160 shops nationwide.
And in August, Target launched its Ulta Beauty at Target stores in more than 100 locations and online. The goal is to open these shops in 800 Target stores in the next few years.
The timing right now for expanded Disney shops and new Ulta ones is perfect. This comes right before the holiday shopping season. The move is likely to result in greater traffic at Target in the months to come.
Beyond the holidays, this momentum probably will continue. With its variety of offerings, Target has established itself as a one-stop destination for shoppers. The addition of two major names in Disney and Ulta will reinforce this perception. That means more trips to Target — and more revenue ahead for this unstoppable retail giant.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.