Target has announced its results for the 2018 holiday season, revealing that comparable sales grew 5.7% annually in the November-December period a strong acceleration compared with 2017s 3.4% growth.

Target's Digital Sales

The retailers digital sales saw 29% year-over-year (YoY) growth in that period, with a quarter of those sales being fulfilled via Targets Store Pickup or Drive Up offerings, which grew over 60% YoY. These results put the company on track to grow its digital sales over 25% for full-year 2018 the fifth year in a row it will have done so.

The retailers formidable holiday performance is likely due to the aggressive tactics it employed:

  • Free two-day shipping for everyone.Target announced in October that it would be offering two-day shipping on hundreds of thousands of items for all customers, with no stipulations. This officially made Targets shipping offering a leader among big box retailers, as it didn't require a subscription, like Amazon's service, or a minimum order value, like Walmart's offering, for purchases to qualify for two-day speeds. This accessibility likely helped draw in shoppers during the holidays, and it could do so again if Target chooses to continue the service, as consumers value fast and free shipping.
  • Boosted toy offerings.The retailer pulled out all the stops for toy sales this year: It added 250,000 square feet dedicated to the category across 500 stores, and had 25,000+ hours of fun and giveaways to let kids test toys. The hands-on nature of this strategy may have helped Target draw shoppers away from Amazon, which took its own steps to pull toy shoppers.
  • A slew of last-minute fulfillment options.Target introduced a suite of last-minute delivery guarantees in mid-December to cater to late shoppers. These included guaranteed Christmas Eve arrival for orders placed by December 20 (if shipped with free shipping) or December 21 (with paid Express shipping). Same-day pickup was also guaranteed for orders placed by 6 p.m. on Christmas Eve, as was same-day delivery on orders placed through Target subsidiary Shipt up to 2 hours before closing time on Christmas Eve. These eleventh-hour offerings provided an alternative for non-Prime members who still wanted access to fast shipping without a subscription, likely gaining Target some last-minute shoppers.

Targets performance is very promising, but it should also consider the profitability of providing such aggressive offerings in the long term.The resources Target provided during the holiday season were attractive, but likely also incurred higher costs for the retailer than in previous years.

And while gaining more customers and higher loyalty is a solid goal, doing so in an unprofitable way would be problematic in the long run. As such, Target should have strategies in place to convert higher traffic into more profits; for example, its new fulfillment system uses smaller and more efficient inventory shipments to stores, helping shrink fulfillment costs.

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