A Bullseye For Target Delivering $106 Billion In Annual Sales

Target
TGT
has done it! The company has surpassed a great milestone reaching $106 billion in revenues for the fiscal year 2021. Sales increased 13.3% over last year with operating profits up 36.8%. The $27 billion increase in revenue was split between stores, which were up $14 billion, and digital, up $13 billion. The company discussed how the stores and digital work hand-in-hand. “The 35% revenue growth since 2019 is in the top quarter of the Fortune 500  companies,” said Brian Cornell, CEO of Target. The company is very focused on funding strategic investments such as the employee team, digital channels including same-day services, merchandise assortments including private label, and understanding consumer behavior through its owned media business called Roundel. The other areas being continually funded are operational strategies including automated distribution centers, additional sortation centers, and improving efficiency of last mile delivery. 

Continued significant investments in teams 

The entire executive team that presented the fourth quarter (Q4) earnings and full year performance referenced the importance of the teams working at Target. The company recently announced its commitment to higher wages, continuation of education benefits and improvements to its employee healthcare program with a $300 million investment for these types of initiatives. Mark Schindele, chief stores officer, said, “The best investments we can make as a company is in our teams (employees) in terms of  wages and debt-free education.” Over 50,000 employees have taken advantage of Target’s debt-free education program according to Cornell. Additionally, the company rolled out automated work shift scheduling which allows employees to pick their own shifts; the program is currently being used by 35,000 employees. The goal is to be the best place to work, period. 

Digital strategies have paid off big 

Prior to the pandemic, Target invested in a digital-first strategy. Over the past two years, the digital businesses including e-commerce, in-store pick-up, Shipt and curbside drive-up have increased 20.8% on top of last year’s increase of 144%. The company discussed how consumers that shifted from shopping in stores to curbside, pick-up and Shipt during the pandemic have stayed with those behaviors. Customers are more actively shopping across online, mobile and in stores, to make a true hybrid shopping model. Cornell stated, “How we run stores is our secret to driving digital,” and he shared that digital sales are 19% of total revenue generated. Cara Sylvester, chief marketing and digital officer of Target, discussed how the company is constantly learning from its customers and has provided marketing and  assortments that are inclusive across all platforms, providing the opportunity for Target to make relevant connections with guests. Sylvester said, “We have a holistic view of our guests lived experiences.” Roundel provides robot analytics and insights around customer shopping behaviors which Target and its partners use to provide better assortments and experiences. 

Merchandise assortments are curated based on customer preferences

Christina Hennington, chief growth officer of Target, discussed how the company is playing offense when it comes to assortments offered. Hennington said, “We offer curated assortments that meet the needs of our customers and we provide the tools for customers to easily navigate the assortment,” adding that the paradox of choice is real — a reference to customers having too many choices, overwhelming them with decision making. Target uses tools in the app and online to help customers pinpoint the right products that are personalized to their shopping preferences. The company offers nationally branded merchandise alongside its own products. To further its offerings, Target + provides a shared marketplace of additional branded products accessible online. 

Gross margin was 28.3% compared to last year at 28.4% despite higher product costs and hefty supply chain increases. Protecting the gross margins from higher product and supply chain costs are a focus for the company with continued investments in private label, improving efficiency in fulfillment, and reducing costs in logistics. Private label merchandise accounted for sales of $30 billion in 2021, 28% of total revenue.

Operational efficiencies drive sales, margin and profits

Continuing to strengthen an already strong operating process has been the company’s focus over the past two years with the onset of the pandemic. John Mulligan, chief operating officer, discussed how quickly the company had to pivot to meet the needs of customers during the pandemic and how Target continues to seek improvement with efficiency and cost reduction. Mulligan recalled that the company had not opened any distribution centers in over a decade prior to opening two last year. With the increased volume of sales and more stores, the company plans to open four more distribution centers over the next year. The centers have adopted robotics and automated processes to reduce costs, improve efficiency and increase the speed of products to market. In addition, the company piloted sortation centers last year which took the fulfillment process away from the stores and created much more efficient picking, packing and delivery processes. The sortation centers have favorably impacted customer service by decreasing the time that packages take to ship and have lowered the cost of last-mile delivery by 33% (typically the highest cost sector in package delivery). Target currently has five sortation centers and plans to open six more this year. 

Target operates almost 2,000 stores in the U.S. market and at Target.com. The company has over 100 million customers in its loyalty program, one of the largest programs in the U.S. For Q4, sales were up 9.4% with operating income up 14.1%. The company guidance for 2022 is for mid-single-digit revenue growth and an operating margin rate of 8% or higher. The company stated that quarter-over-quarter performance may vary but the full-year results will be ahead of 2021.