Big box rules: Target's online campaign readied it for virus

Online sales at Target more than doubled as the pandemic put millions in lockdown during the first quarter, revealing further the critical role big box stores played in getting supplies to an immobilized population.

The Minneapolis company reported Wednesday that comparable-store sales, which include online purchases, rose 10.8% for the three-month period that ended May 2.

That was fueled by a 12.5% jump in the number of items customers bought with each trip to the store as families made major restocking runs, but fewer of them.

“Last quarter was unlike anything I have ever seen,” Target's CEO Brian Cornell told reporters on a conference call. “It was intense. It was volatile. It was stressful for our guests and for the country."

Major retailers like J.Crew and J.C. Penney closed their doors and have sought bankruptcy protection. But Target and Walmart, deemed essential by local and state governments, became a critical lifeline.

And a years-long campaign to challenge online was exactly the technology needed to ride out a pandemic. Target's 1,800 stores have been turned into distribution hubs for a highly efficient online sales machine.

Target's stores were directly involved in supplying goods for 80% of online sales. Same-day services, such as curbside pickup at stores for things ordered online, nearly tripled.

Cornell said that by April, weeks into the spread of the pandemic in the U.S, shoppers began to buy make discretionary purchases like clothing and household goods. He believes that came from stimulus checks.

Target picked up market share across all categories, Cornell said, and it counts 5 million new customers on its online website, and 2 million new users of its drive-up services.

As has been seen with other retailers that are operating in a pandemic, costs soared as well. Target spent and additional $500 million on things directly related to the outbreak. It's bumped up hourly pay for workers by $2. It has now extended emergency pay for those workers to July 4. Target also spent money to sanitize stores and warehouses, new protections for workers an signage for customers to ensure social distancing.

Cornell said those costs will be the new reality going forward.

“There is going to be a premium on creating a safe sanitized shopping environment," he said. Shopping while minimizing human contact is the new normal, he said, referring to drive-up and curbside pickup.

Target reported an 11.3% increase in revenue, which hit $19.62 billion for the quarter. Analysts surveyed by FactSet expected $19.02 billion. Net earnings slid 64% to $284 million, or 56 cents, or 59 cents when adjusted for non-recurring events. That's far better than the per-share profit of 44 cents that Wall Street was expecting, according to a survey of analysts by FactSet.

Shares were essentially flat before the opening bell.