Target digital sales make significant gains due to COVID-19 demand but in-store sales drop driving shares down

Target digital sales make significant gains due to COVID-19 demand but in-store sales drop driving shares down

Target's digital sales grew by more than 100% in March and are up 275% so far in April as consumers ordered more essentials and groceries online for delivery and pickup amid the coronavirus pandemic.

But while online growth has accelerated dramatically, the Minneapolis-based retailer announced Thursday that in-store sales have started to soften as millions have sheltered in place.

In some categories like food & beverage and essentials, sales were up 20% in March. But apparel and accessory sales dropped by similar margins. Apparel is down more than 40% month-to-date in April.

The news drove Target's share down 6.7% in premarket trading Thursday.

"Consumer behaviors continue to change dramatically, particularly as public health officials have told Americans to minimize their time in stores," Target CEO Brian Cornell said in a call with reporters to discuss the retailer's COVID-19 response.

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While online sales were up and total company comparable sales were up more than 7% overall, Target is spending an additional $300 million in temporary benefits, wages and bonuses for workers, a COVID-19 measure announced in March that was scheduled to last at least until May 2.

Target said Thursday that it is extending the $2 an hour temporary wage increase for employees and a paid leave program for workers most susceptible to the coronavirus until May 30. Employees 65 and older, pregnant or with underlying medical conditions can access paid leave for up to 30 days.

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Target withdrew its first-quarter guidance on March 25 but officials said Thursday that the investments in pay and benefits, a shift in category mix “towards lower-margin categories” and had "inventory write-downs in Apparel & Accessories to reflect the rapid deceleration in sales trends."

Together, these factors are expected to reduce the company’s first-quarter operating margin rate by more than 5 percentage points, officials said.

At a time where thousands of other retailers have had to temporarily shutter stores or switch to a purely online model, Target has taken other actions in recent weeks.

It reduced hours at its nearly 1,900 stores, dedicated shopping time for vulnerable guests, installed plexiglass partitions and started to limit the number of shoppers in stores to promote social distancing as of April 4.

But that hasn't been enough to placate all workers. Target Workers Unite, an employee activist group, announced earlier this week that some workers are planning a mass sickout May 1 because they don't feel the efforts go far enough to prioritize their safety.

"I think the majority of our team feels as if we're doing everything possible to protect them, to make sure we're creating a safe environment for our team and our guests, and we'll continue to make sure we focus on that throughout the pandemic," Cornell said.

Other measures Target has taken include staffing Drive Up curbside pickup and hiring 80,000 workers for its Shipt grocery delivery service.

"In April, we've seen weeks when Drive Up volume was up to seven times greater than normal and single days in which order pickup volume was twice as high as Cyber Monday," Cornell said of the contactless shopping options.

Cornell said the shift towards digital is "likely to be long lasting as guests continue to weather the crisis" and they develop new routines from being home with their families.

"We certainly expect that there's going to be changes consumers are going to make in how they live, how they shop, how they work and what they value," Cornell said. "We better make sure that we're agile enough to respond to those changes. We recognize that there's going to be several more months where there's going to be significant concern, as we work through this pandemic."

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