The coronavirus pandemic has had a devastating impact on retailers, forcing many into bankruptcy over the past eight months. Target (NYSE: TGT), on the other hand, just had an outstanding third quarter, and some of its wins could serve as a lesson for struggling retailers.
Great sales numbers from Target
The most recent Target earnings report easily exceeded analyst expectations. Both online and in-store sales grew 20.7% during the third quarter. The retail giant also closed out the third quarter with $22.63 billion in revenue, and same-store sales were up 20.7%. Net income rose to $1.01 billion, or $2.01 per share, from $714 million and $1.39 per share a year prior.
The pandemic may have fueled strong Target earnings
Target isn't the only big-box store to come out a winner in the midst of the coronavirus pandemic. Walmart (NYSE: WMT) also announced strong third-quarter earnings, with $134.7 billion in revenue and same-store sales up 6.4%.
But let's not forget that as an essential business, Target has not faced the same restrictions many other retailers have during the pandemic. In fact, the retail giant has been able to capitalize on two trends that emerged this year: the need to stock up on basic supplies and alleviate boredom. While trips to Target, for many consumers, may start out as attempts to replenish milk, bread, and toilet paper, those outings can easily evolve into full-fledged shopping sprees. The size and layout of Target stores also makes it possible for skittish consumers to shop with ease amidst virus-related concerns.
But perhaps Target's greatest strength during the pandemic has been its ability to adapt to customers' safety concerns and needs. At the start of the pandemic especially, shopping at stores -- even Target stores -- was a scary prospect. Target adapted quickly, offering curbside pickup called Drive Up to those hesitant to enter the store. Not surprisingly, Target's curbside service grew more than 500% in the third quarter. Meanwhile, home delivery through its Shipt service was up nearly 280%.
Plans to grow
Despite its recent success, Target is not done innovating. In fact, it recently announced plans to open small Ulta Beauty (NASDAQ: ULTA) shops inside its stores in an effort to position itself as a solid source of cosmetics and personal care items. That move alone should position Target to start raking in extra cash as it focuses on continuing operations.
What other retailers can learn
To a large degree, it's difficult to compare Target to your classic department store or clothing retailer. Target will always have the upper hand because it provides necessities like food, cleaning supplies, and toiletries -- purchases consumers can't skimp on even during a pandemic, and even at a time when so many households are low on cash. But one thing Target really did right this year was make it easier for consumers to get their hands on the products they want. And that's one area struggling retailers may seek to improve on.
Though a number of smaller retailers have adapted to the pandemic by offering curbside pickup, many still have a ways to go when it comes to improving on the shipping front. That's a shortcoming they should seek to remedy quickly, before the holiday shopping rush begins.
The bottom line
While Target's earnings may have come as a pleasant surprise to Wall Street, the retailer has clearly done an excellent job of growing its brand and managing its cash flow while adapting to the needs of shoppers during the pandemic. And though the company certainly has an advantage given its product line, it certainly wouldn't hurt for other retailers -- and by extension, their commercial landlords -- to dig deeper into what Target is doing right and aim to emulate it.