Target sees in-store and online improvements (TGT)

Target reported its results for Q2 2017 yesterday, revealing a 1.6% year-over-year (YoY) uptick in revenue to $16.4 billion for the period.

The retailer also saw its same-store sales rise 1.3% YoY, marking the end of a three-quarter streak of declines in the metric. Target attributed the positive figures to a 2.1% YoY increase in transactions across physical and digital channels. Digital sales were especially strong, advancing 32% YoY, and contributing 1.1 percentage points to the company's total sales growth for the quarter.

Target’s internal investments seem to be paying off. The retailer has committed $7 billion to a three-year transformation in a bid to improve its outlook, and some of those investments are already bearing fruit:

Target may be on the right path, but it still has work to do to compete in a digital-first environment. Digital sales only accounted for 4.3% of Target’s total sales this quarter, and 4% in 2016, amounting to $3.1 billion last year. Amazon, on the other hand, had $92 billion in online sales in 2016. Target’s Q2 increase in digital sales is promising, but it will need to sustain that kind of growth for some time to make its online arm a material part of its business. Target also needs to revitalize its food unit, which turned in a flat performance in Q2, as Amazon gears up to enter the industry with its acquisition of Whole Foods, and other grocers are engaged in a price war.

Brick-and-mortar retailers are caught on the wrong side of the digital shift in retail, with many stuck in a dangerous cycle of falling foot traffic, declining comparable-store sales, and increasing store closures. Over 8,600 retail stores could close this year in the US — more than the previous two years combined, brokerage firm Credit Suisse said in a recent report. Meanwhile, e-commerce pureplays are riding the rise of digital commerce to success — none more so than Amazon, which accounted for 53% of online sales growth in the US last year, according to Slice Intelligence.

In response, many brick-and-mortar retailers have started to use omnichannel fulfillment methods that leverage their store locations and in-store inventory in order to better compete in e-commerce. These omnichannel services, including ship-from-store and click-and-collect, can help retailers manage the transition to digital by:

However, few retailers have mastered these new fulfillment services. While these companies have spent years optimizing their supply chain and logistics networks for delivering goods to their stores or directly to customers’ doorsteps, most have yet to figure out how to profitably bring their store locations into the e-commerce delivery process.

Here are some of the key takeaways from the report:

Target sees in-store and online improvements (TGT)

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