Is Target killing department stores and specialty clothing chains?
Shares in Target were up 14.1 percent in trading yesterday as the retailer’s stock price hit a record high following a third-quarter in which its same-store sales improved 4.5 percent.
All signs point to a strong holiday season as Target continues to make gains in apparel and online sales, while improving its inventory management and profitability in the process. Particularly impressive for the chain was a 10 percent gain in clothing sales in the quarter and an uptick in profitability driven by fulfillment of online orders by the chain’s stores.
Speaking on yesterday’s earnings call with analysts, Target CEO Brian Cornell said the chain picked up apparel market share gains, with a wide variety of categories, including “accessories and shoes, intimates and sleepwear, young contemporary and women’s ready to wear,” all seeing improvement. Target also benefited from selling more full-price merchandise during the quarter, as well as from the introduction of strong private labels in recent years.
Profitability, particularly in light on a 31 percent comp gain in digital sales, was seen as another key point in Target’s story.
“Within our digital sales, 80 percent of our third-quarter growth was driven by same-day fulfillment options, in-store Pick Up, Drive Up and Shipt,” said Mr. Cornell. “Given that these same-day options rely on our store assets, team and inventory, they are much more profitable than traditional e-commerce fulfillment.”
While Target is typically evaluated relative to competitors Walmart and Amazon.com, its market share gains in apparel and the struggles of others suggest that its growth may also be coming at the expense of mid-tier department stores (J.C. Penney, Kohl’s and Macy’s) and specialty clothing chains (Gap).
Last week, Penney reported that its same-store sales fell 9.3 percent in the third quarter. Even when adjusted to account for appliances, which have been discontinued under current CEO Jill Soltau, Penney’s comps were down 6.6 percent.
Kohl’s reported a 0.4 percent increase in its most recent quarter after having seen declines in the two previous quarters. Women’s apparel, a key category for the retailer, was down one percent.
Macy’s, which reported lower-than-expected sales of seasonal apparel during its second-quarter earnings announcement in August, recently notified customers of an October data breach that some expect may negatively affect holiday performance.
Gap Inc.’s major chains — Banana Republic, Gap and Old Navy — all posted same-store declines in the third quarter and the retailer lowered its forecast for the fiscal year. The company replaced president and CEO Art Peck after he failed to get the business turned around since taking over in 2015.
- Target Reports Third Quarter Earnings – Target Corporation
- Target Corporation (TGT) CEO Brian Cornell on Q3 2019 Results (Earnings Call Transcript) – Seeking Alpha
- C. Penney Company, Inc. (JCP) CEO Jill Soltau on Q3 2019 (Earnings Call Transcript) – Seeking Alpha
- Kohl’s Corporation (KSS) CEO Michelle Gass on Q3 2019 Results (Earnings Call Transcript) – Seeking Alpha
- Macy’s, Inc.’s (M) CEO Jeff Gennette on Q2 2019 Results (Earnings Call Transcript) – Seeking Alpha
- Will a hack ruin Macy’s Christmas? – RetailWire
- Gap Inc.’s CEO steps down. What comes next? – RetailWire
DISCUSSION QUESTIONS: What major retailers have the most to lose from Target’s gains? What is your assessment of Target’s prospects for the holiday season and into 2020?