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Target (NYSE: TGT) recently reported early results for the November-December holiday period, and digital sales stood out. Sales originating from Target.com increased 29% year over year, leading to 5.7% growth in comparable-store sales. That's on top of 3.4% comparable-store sales growth in the same period last year. The 29% growth in digital sales matches its results for the full fourth quarter last year.
Management provided an interesting detail in its announcement: The company's digital sales growth "was driven entirely by growth in store-fulfilled digital sales."
Target has made significant investments in fulfilling orders from its stores in 2018. That includes shipping more items from stores, offering curbside pickup, and expanding its same-day delivery service. Its holiday results, in the face of stiff competition, indicate the investments are paying off.
Image source: Target.
Order online, pickup in store
Online orders picked up at stores increased 60% year over year in November and December. Store pickup orders accounted for one-quarter of all online orders, the company said.
One of the driving forces behind that growth is Target's Drive Up service. Drive Up is a curbside pickup service, which is the height of convenience for in-store pickup. Walmart (NYSE: WMT) has quickly grown its online grocery business via its curbside pickup service.
Drive Up expanded from a few stores in Minnesota in October 2017 to nearly 1,000 of Target's 1,800 stores by the end of October last year.
The combination of Target's selection and convenience (there's a store within 10 miles of three-quarters of the U.S. population) made it an excellent option for holiday shopping.
It's worth noting Target doesn't support curbside grocery delivery like Walmart, but it handles just about everything else. Online grocery delivery has been fueling Walmart's online sales growth over the past year, so it may be an opportunity for Target to expand. Target currently handles online grocery ordering via Shipt, its same-day delivery service.
Not without its downsides
Target's digital sales are fueling its comparable-store sales growth, but relying on stores to fulfill online orders has a couple major downsides.
First, using store inventory to fulfill online orders makes inventory management even more difficult. Walmart, in particular, ran into trouble in the fourth quarter last year when it had difficulty keeping items in stock. It took a big sales hit as a result.
Target is investing in supply-chain technology to manage inventory levels across its stores to support expected in-store and online sales. But there's still greater risk of its stores going out of stock as they devote more inventory and resources to online sales.