While many retailers saw their revenue sink in the course of the coronavirus pandemic, Target (NYSE: TGT) managed to thrive. In fact, the big-box giant wrapped up its last fiscal quarter with $28.34 billion in revenue -- almost $1 billion beyond Wall Street's expectations. Not surprisingly, Target's stock price has nearly doubled over the course of the past year.
A big reason for Target's success stems from the fact that it's truly become a one-stop shop for consumers. That's given it a huge edge during the pandemic, and it will continue to give Target a leg up over the competition as consumers increasingly put a premium on convenience.
But that's not the only thing Target's done right. Over the past year, it's also invested in key partnerships designed to draw in even more customers. Last November, it announced that it would be teaming up with Ulta Beauty (NASDAQ: ULTA) to open makeup and skin care shops within its stores. And earlier this year, it entered into an agreement to open dedicated Apple (NASDAQ: AAPL) shops as well.
More recently, Target entered into a collaboration with personal direct-to-consumer wellness brand Care/of. Target will begin featuring the company's new vitamin line -- a smart move given the shift to self-care that's emerged during the pandemic.
At this point, Target is opening up so many in-store shops and teaming up with so many unique brands that it's almost becoming a mini-mall. And that raises a question: Should real estate investors give up on malls and just put their money in Target instead?
Will Target ruin malls?
Shopping malls have been losing tenants for years as consumers have increasingly shifted to e-commerce and gotten comfortable with the idea of buying products online. But the pandemic certainly didn't do malls any favors. In the course of the past year, malls have lost numerous tenants, including essential department store anchors, as cash-strapped retailers have been forced to shutter. And seeing as how many retailers are beginning to ramp up their investments in warehouses and distribution centers to focus on online order fulfillment, it's a pretty scary time to have mall REITs (real estate investment trusts) in one's portfolio.
But Target poses an even more unique threat to malls. By partnering up with more brands, Target could end up taking a lot of customers away from malls in the coming years, especially since it's also done a good job of expanding its pickup and delivery options. These days, Target customers can order items online and retrieve them via curbside pickup or get them shipped out that very same day. And there's something to be said about parking in a shopping center lot and marching right into Target rather than having to navigate a mall directory to buy clothing, personal care products, and electronics all in the same trip.
While Target may not pose as much of a threat to Class A malls, sluggish malls with heavy competition from Target could crumble in its wake. And that's something investors will definitely need to think about.
Of course, buying shares of Target is not at all the same concept as investing in mall REITs. But given the big-box giant's success and the precarious nature of malls, it's an option real estate investors may want to look at nonetheless.