Will Target ‘Drive Up’ Business With Curbside Returns?

Can a too-small pair of joggers or a security camera that’s too complicated for the buyer to install get people to come back to the same retailer again and again? Target’s betting that if customers can just “click” the items to the curb, they will.

This is part of the logic behind the mass-merchandise retailer’s new national service, rolling out now, called Drive Up Returns. An added feature of its Drive Up online order pickup program, made national in 2019, Drive Up Returns allows Target customers to bring back unwanted items without leaving their cars.

There’s likely more to this option than customer convenience, however. Ideally, Drive Up Returns will encourage added sales at a time when Target is bracing for a slowdown, due in part to a cutback in discretionary spending. Target in February said it projects 2023 sales growth to be, at best, in the single-digits. Its 2023 profit guidance was below analyst expectations.

4 Arguments For Investing In Curbside Returns

Drive Up Returns, which CNBC reports is expected to be available at all locations by the end of the summer, could encourage more of those discretionary purchases so important to Target. Here are four money-following reasons.

Shoppers return when returns are easy. Target expects curbside returns will lift customer loyalty and sales. Data backs this up: Eight in 10 consumers give priority to retailers that offer easy returns, Chain Store Age reports. This extends to online purchases: Shoppers prefer to go to a store to make in-person returns over mail-in returns – and even over free home pickups, according to Forbes. A bonus is that Target’s merchandise mix is heavy on the goods more likely to be brought back, such as apparel and footwear, which reportedly account for 46% of recent retail returns. Just about 20% of Target’s sales come from grocery items, which are less likely to be returned, CNBC reports.

In-store returns eat less profit. When shoppers pickup or return items on their own, it spares the retailer a lot in shipping costs. At Target, as same-day fulfillment services (including Drive Up) expanded over four years, the associated costs of filling orders fell by 40% per unit. Now, more than 95% of Target’s sales, including digital orders, are fulfilled in stores. Drive Up Returns dovetails into that formula by adding efficiency and resale opportunities – both of which contribute to the bottom line. With Drive Up Returns, Target is essentially combining its online self-service returns option with Drive Up, executives have said, getting it in front of customers in a different way, cost effectively.

Curbside returns can encourage more in-store activity. Historically, the more options Target has offered its customers to interact with the chain, the more trips they’ve made and the more they’ve spent in-store, executives have said. But will the convenience of curbside returns eliminate purchases that in-store returns might generate? Target said that over time, it began to think about “cutting economics by guests” differently, and that a more powerful economic relationship is gained by making it easier for its customers to fall in love with the chain. True enough, Drive Up Returns could encourage customers to make iffy purchases that they might otherwise pass on if they knew they had to deal with the friction of in-store returns.

And now, competition. Despite Target’s big announcement, curbside return services are not the distinguishing competitive edge they were a few years ago. Dick’s Sporting Goods added curbside returns in 2020, and Walmart rolled out curbside returns at all of its stores in the fall of 2022. So a company the size of Target could lose customers if it didn’t offer Drive Up Returns. Evidence: Walmart has reported that from its launch last fall to April 2023, the volume of customers using its curbside return service has doubled. Indeed, Target told CNBC that over the course of a year, customers who used Drive Up for pickup or returns spent more money in its stores than other customers.

But … What About The Loyalty Opportunity?

Less certain is how, if at all, the retailer might fold its Target’s Circle reward program into Drive Up Returns. Target executives have said they plan to place more emphasis and invest more money in Circle in 2023, but did not specify if Drive Up Returns will become a touchpoint for program enrollment and engagement.

For now, members can redeem Circle benefits on orders fulfilled via Drive Up, the program’s website explains. No language yet on Returns. As for program enrollment, the company informs customers they can do so online, through Target’s mobile app or in-store at the register – but again does not specify Drive Up as an option.

Extending the choices to include Circle enrollment and bonus rewards at Drive Up/Returns might deepen engagement. Target can, for example, send incentives to customers at the time they schedule a return, potentially for items that complement or serve as alternatives to the returned items.

This would further encourage more of those in-store trips executives have talked about.

Regardless Of Options, Return Visits Require Loyalty

Target executives do recognize one hard rule of getting their customer to “fall in love” with the company: short-term goals don’t pay off when they force customers to perform unwanted tasks. Lugging purchases into the store and waiting in line to return them is, to many, an unwanted, time-sucking task.

By making those returns easy, Target is at least enticing its customers to come to its parking lot. Unburdened by the weight of those returns, and enriched with a refund, it makes sense that some choose to shop in the store, after all.

As Target Chief Operating Officer John Mulligan told investors in February: “What is important is (to) allow the guests to interact with us how they choose.”