In early 2017, Target unveiled its long-term plan to reinvigorate the retailer after its disappointing performance the previous year. Target vowed to invest more than $7 billion in capital over the next three years, and about $1 billion in annual operating profits to position the company as a digital-first retailer that was willing to take on the challenge of meeting customers’ rapidly changing preferences on how they wanted to shop.

The announcement initially put a “target” on the retailer’s back from the Wall Street community, which criticized the retailer’s plan, plummeting shares by more than 12%. While hindsight is always 20/20, Target’s investments are now beginning to pay off, demonstrating its ability to understand what’s truly best for its business, even in the face of opposition. The retailer’s Q1 2019 results showed an eighth consecutive quarter of comparable sales growth. Additionally, Target is on track for its sixth straight year of digital sales growth of 25% percent or more, posting 42% growth in Q1 2019.

With digital sales now accounting for more than $5 billion in revenue annually, Target has proven itself to be a major online retail player. Here are five reasons why your CPG brand needs a dedicated Target e-commerce strategy.

Stores as Convenience Hubs

In its 2017 announcement, Target’s CEO Brain Cornell stated that part of the company’s plan would be to remodel 600 of its stores. That figure later increased to 1,000 by the end of 2020. 

This was the main reason for Wall Street crushing Target’s stock. While most retailers at the time were shuttering store locations (and still are), it felt counterintuitive to the financial community to invest billions in this area. 

Target saw these stores as an asset, but they needed to be redesigned to serve customers as convenience hubs. Despite Wall Street’s protestations, the remodels are driving favorable results. In fact, over half of Q1’s 42% year-over-year digital growth was attributed to Target’s wide array of options for guests to receive digital orders in as soon as one hour, including Drive Up, Order Pick Up and Same Day Delivery via Shipt.

Not only is Target redesigning its existing stores, but it’s also opening new small-format stores that are focused on convenience. By placing these smaller stores in downtown neighborhoods and adjacent to college campuses, Target can provide an omnichannel experience to customers who live in areas that were once harder for the mass retailer to penetrate.

Acquisition of Shipt

Eliminates Friction

Target’s acquisition of delivery company Shipt in late 2017 made same-day delivery to consumers’ homes a reality. This completes the frictionless omnichannel experience by allowing consumers to shop with Target however they want to: in store or online via pickup, same-day delivery or traditional shipping via FedEx or UPS.

Originally, same-day delivery from Target was only available by becoming a Shipt member, which costs $99 per year. In June, however, Target announced that it was expanding the service, providing shoppers in 47 states a catalog of 65,000 food and non-food items that can be delivered within an hour for a flat fee of $9.99 per order.

E-commerce Grocery

Target showed a clear intention to capture a much larger slice of the fast-growing online grocery market when it acquired Shipt. Though Target lacks the grocery market share of Walmart or Kroger, a recent Brick Meet Click assessment ranked Target ahead of both retailers in omnichannel grocery shopping experiences. Moreover, the number of Target’s e-commerce grocery and CPG buyers increased 122% between 2017 and 2019.

Though a strong portion of Target’s growth in digital grocery and CPG sales can be attributed to click and collect fulfillment, it’s important to point out that Instacart’s percentage growth of online CPG purchasers grew 256% during that timeframe, faster than any other retailer. Being that Instacart is one of Shipt’s main competitors, this growth further validates the hypothesis that consumers are rapidly adopting grocery delivery as they seek faster and more convenient shopping experiences. Furthermore, with one-day shipping becoming the norm, having a subsidiary like Shipt will prove extremely powerful for Target in the future.

Amazon’s CRaP Is Target’s Treasure

While Walmart and Amazon have extensive distribution networks, Target has decided to be scrappy and use its stores to double as hyperlocal distribution centers. This strategy allows Target to ship orders to customers essentially from their own backyards, which allows for faster delivery, but it also allows Target to operate more cost effectively. Target fulfills all Restock program orders (its next-day Amazon Pantry competitor) along with three of every four digital orders directly from store shelves.

The micro-shipping point logistics method helps Target offer popular CPG items that Amazon has started to eliminate or raise prices on due to slim profit margins. While Amazon might not be able to make money on these items, Target is using its stores to ship them, giving the brick-and-mortar retailer a clear advantage. According to COO John Mulligan on Target’s Q4 2018 earnings call, shipping from the store saves Target 40% to 90% compared to shipping from a warehouse, with the greatest level of savings coming from orders picked up in store or curbside.

Target+ Marketplace

As competition heats up against Walmart and Amazon, Target announced in February 2019 that it will start including a curated assortment of products from third-party sellers on its website. The Target+ marketplace will initially be on an “invite-only” basis, which will allow the retailer to keep a certain level of control over the merchandising challenges that come with an open marketplace. As Target gains a deeper understanding of what their marketplace shoppers want, it should be assumed that the retailer will begin to offer more opportunities for brands, opening up the company to more digital sales growth.

Advertising Ambitions

While only preliminary at the time of writing, Target has begun talks to acquire WPP’s Triad Media unit. Triad was one of Walmart’s top clients until the retailer recently took its advertising division in-house in an effort to catch up to Amazon’s massive advertising growth. Target’s interest in acquiring Triad shows that the retailer knows it needs an injection of talent and technology to keep up with the ad sales of its competitors. As CPG marketers adjust to possible changes at Google and Facebook with growing government scrutiny, a strong move by Target could provide an additional advertising outlet to reach more customers.

Conclusion

As a CPG brand, if your e-commerce strategy only focuses on Amazon, you’re likely missing out on a significant revenue opportunity, both now and in the future. Target’s recent investments in its omnichannel initiatives have made it an e-commerce powerhouse and a primary destination for today’s shoppers. Moreover, its ability to use stores as micro-shipping centers allows it to carry many of the products that Amazon deems unprofitable, providing an alternative revenue source when you end up on the “CRaP” list. Its recent announcement regarding its Target+ Marketplace shows just how serious the retailer is about e-commerce and demonstrates the necessity of brands to have a strong presence on the platform sooner rather than later.

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