By Paul Ziobro
(FROM THE WALL STREET JOURNAL 2/25/16)
Target Corp. reported strong growth in its online business during the key holiday quarter, crossing $ 1 billion in digital sales for the first time, though aggressive promotions cost the retailer some profitability.
The promotions and overall efforts to improve merchandise and spruce up stores with better displays also brought in more shoppers for the fifth straight quarter, as Chief Executive Brian Cornell works to restore Target’s relevance with customers.
Shares of the company rose 4% Wednesday to $ 76.95, and are up nearly 6% over the past year. Target has been spending heavily to improve its digital operations and it paid off in a holiday season where online sales grew three times faster than the overall market, according to the National Retail Federation. During the holiday period, the industry group estimated that sales increased 3% to $ 626 billion while online sales rose 9% to $ 105 billion.
Target’s fourth-quarter online sales, while growing fast at a 34% clip, are still a tiny fraction of longtime rival Amazon.com Inc., which posted a 24% increase in the fourth quarter in North America. Amazon.com’s e-commerce sales in North America are roughly 20 times more than Target’s.
And to log such a strong performance, Target used aggressive discounts and promotions, such as free shipping on all orders during the holidays, and steep sitewide discounts, such as 15% off all Cyber Monday purchases. Target’s gross margins fell to 27.9% for the quarter from 28.4% last year, more than analysts forecast.
Target and other retailers are struggling to find a balance between pursuing rapid online sales growth, where customers are increasingly shopping, and protecting margins. Target is trying to push online sales of higher-margin products like apparel and furniture, and using its stores as both pickup points and shipping hubs to cut down on costs. “Digital does have a little more challenged economics,” Target Chief Financial Officer Cathy Smith said on a conference call Wednesday.
Unlike Amazon, Target and other brick-and-mortar retailers can use their websites as a starting point to try to steer shoppers to their stores, where sales are more profitable. And the store-based inventory is now being used to keep customers when online storerooms run out of items.
For the quarter, Target reported a profit of $ 1.43 billion, up from a loss of $ 2.64 billion a year earlier when Target recorded losses from exiting its Canada business. Revenue declined to $ 21.63 billion from $ 21.75 billion, mainly due to the sale of its pharmacies.
(END) Dow Jones Newswires 02-25-160247ET Copyright (c) 2016 Dow Jones & Company, Inc.