Old habits tend to die pretty hard - especially shopping habits. For years we've been hearing about a shift in consumer buying behavior that increasingly favors online platforms like Amazon to the detriment of large, traditional bricks and mortar retailers. This trend is, of course, actually happening. Looking at retail operators like Macy's, and the now defunct Sears and JC Penney makes the shift to digital shopping excruciatingly clear. However, looking around your hometown might raise questions as to the speed of the shift to digital consumerism and if there were some corners of the retail market that might prove resistant to Amazonesque disruption.
Take general merchandise retailers, like Target, for example. Target owns and operates large, general goods stores with significant physical footprints that sell everything from home furnishings, to grocery goods, clothing, electronics, and sporting goods. Over the last five years, shares have been resistant to the general decay and decline that has plagued other large retailers in the online shopping era. In fact, they've more than doubled in value during the same period Sears entered restructuring suggesting that Target's bricks and mortar retail model was just fine, thank you.
But then the onset of a global health crisis changed consumer shopping habits in a hurry. Suddenly shoppers couldn't or wouldn't leave their homes to push red carts down aisles of video games and health products and the shift from in-person to digital shopping accelerated significantly.
Target's Q3 2020 earnings report shows that the company was completely prepared to handle this shift. The company's third quarter earnings crushed analyst estimates, reporting that quarterly comparable sales were up 20.7% as customer utilization of curbside pickup increased fivefold. Further, Target reported that use of "Shipt" (the company's home delivery service) increased almost 280%. Altogether, Target estimates that it has gained over $6 billion in market share through YTD 2020, but declined to provide guidance on the remainder of 2020 due to pandemic related uncertainty.
Broadly, there are two things investors should be focused on given Target's very strong results. First, they should keep in mind that due to Target's "general retail" focus and status as a retailer that sells a wide range of goods to customers, the company was able to keep stores open in the early months of the pandemic - this insulated Target from experiencing the same dire drop off in Q2 earnings other retailers recorded.
Second, investors should note that Target has been successful in creating options for customers who want to shop online, pickup curbside, or engage in otherwise non-traditional retail shopping behavior. A core part of Target's business model is operating large physical retail locations and given the broader context of the digitization of retail shopping, a successful attempt to cater to changing shopping habits (virus induced or not) should be applauded. The digitization trend is all but guaranteed to continue, and its highly likely that some shoppers will continue to act out covid-era shopping behaviors even after the pandemic fades from daily conversation. Target has taken the acceleration of this trend in stride and deployed a business plan that, on its face, looks like it will keep consumers engaged and buying Target's products. This bodes well for both the general retailer and shareholders.