Dive Brief:

• Target reported a record 24.3% increase in comparable sales in the second quarter Wednesday, driven by stimulus spending and the retailer’s strong multi-category approach. Store comparable sales increased 10.9% as foot traffic increased during the spring and summer months, while digital comparable sales increased 195%.
• Same-day services accounted for the majority of Target’s digital growth, increasing 273%. Curbside pickup sales grew 734% while same-day delivery sales via Shipt grew 350%. The company netted 10 million new digital shoppers during the first half of fiscal 2020.
• Food, beverage and essentials comparable sales increased 21% — a decline from Q1, when panic-buying in the early stages of the pandemic fueled growth. Sales of Target’s Good & Gather grocery brand surpassed $1 billion in sales during Q2, and during the first half of the year private label food and beverage sales increased more than 30%.

Dive Insight:

Target’s recent enhancements in grocery continued to pay off both in stores and online during the spring and summer months. The accelerated rollout of its grocery pickup service, now available at 1,500 stores, in particular contributed significantly to the company’s digital sales, executives noted during Wednesday morning’s earnings call.

Food and beverage sales declined compared to the first quarter, mainly due to moderation of the dramatic stock-up shopping that defined the early stages of the pandemic, while other categories like apparel, electronics and home goods that are core strengths for Target saw sales rebound. Sales of hardlines led category sales increases with more than 40% growth.

Still, a few updates in grocery bolstered the category in Q2 and promise to pump up future sales while boosting retention of the millions of new shoppers Target has recently drawn. The company will add 600 additional Good & Gather products this fall, bringing the total assortment to around 2,000 products one year after the brand launched. Target has also introduced contactless sampling at its Super Target stores and boosted production of deli and bakery items. In June, the retailer began reopening Starbucks locations inside its stores.

By the end of this year, Target will add grocery pickup services to around 100 additional stores. In 2021, the chain will fill in click-and-collect grocery availability and also add alcohol pickup, currently available at more than 300 stores, to more locations.

Target’s eye-popping quarterly sales increases across its store and digital properties point to its strength across categories. Improvements in grocery, which has in years past been a weak point for the company, promise to draw in shoppers while also building out baskets among those drawn to the company’s non-food categories. Average basket sales grew 18.8% during Q2.

The 10.9% increase in store-based comps is particularly notable at a time when many shoppers are avoiding stores, and points to Target stores as a destination for consumers that have curbed spending across other retail outlets.

Target’s efficiency in digital fulfillment, meanwhile, is increasing through improved processes like enhanced picking algorithms and a favorable mix toward same-day orders, which are cheaper to fulfill, Chief Operating Officer John Mulligan said. In Q2, the company’s average unit cost for digital fulfillment decreased 30%.

“This provided a significant offset to the cost pressure we would otherwise be seeing from our unusually high rate of digital sales growth,” Mulligan said during the earnings call.

Target executives, including Mulligan, CEO Brian Cornell and Chief Financial Officer Michael Fiddelke, talked about how Q2’s results were unlike anything they’d ever seen. But they also acknowledged high volatility in the company’s sales for the rest of the year as stimulus spending recedes and major events like back-to-school, Halloween and the winter holidays face disruption from the pandemic.

Target’s month-by-month sales across the quarter highlight this volatility. Comparable-store sales were up 21% in May but by August had declined to the “low double digits,” according to Cornell.