Target's digital efforts drove $5 billion in sales for 2018

The cheap-chic retailer is turning into an industry example of how to succeed in the age of Amazon.

At Target, engineers drive IT decision making Target CIO/CDO Mike McNamara says the retailer's decision to move to the Google Cloud Platform was based largely on the preferences of its engineering team.

Cheap-chic retailer Target is turning into an industry example of how to succeed in the age of Amazon. The company reported fourth quarter financial results on Tuesday that beat expectations, with revenue climbing to $22.98 billion and EPS rising 11 percent $1.53. 

But the big highlight from the results came from Target's digital efforts, which the retailer said drove $5 billion in sales for fiscal 2018 -- up from $1 billion in 2012.

Target chief executive Brian Cornell said the results stem from Target's years-long strategy to revamp and optimize stores, adopt new technologies, bolster fulfillment and improve efficiencies on the back end.

"We spent 2016 shoring up the fundamentals," said Cornell, on Target's corporate earnings call. "2017 was about laying out an investment agenda and developing new capabilities. 2018 was all about acceleration and innovation. So that in 2019, we can drive adoption and scale."

Cornell stressed that Target's digital gains aren't coming at the expense of its brick-and-mortar stores. Sales at Target stores open for at least 12 months were up 5.3 percent in the quarter. For the year, total same-store sales increased 5 percent, Target's strongest gains since 2005. 

Cornell also noted how Target's technology investments have started paying dividends. The retailer has invested in its infrastructure to support greater scale and speed, and in building enterprise data and analytics capabilities for targeting and personalization. 

"Today, our engineers are using voice, AR, AI and VR to provide greater utility for our guests and integrate richer shopping experiences into their busy lives," Cornell said. "Our team is now building out an even more holistic digital strategy that reaches deeper levels of personalization and engagement across every guest-facing part of our ecosystem."

Fulfillment is also a key component to Target's digital efforts. Like other retailers figuring out how to optimize against Amazon, Target began using its stores as fulfillment hubs to get closer to customers and ease the last mile. The retailer has also expanded same-day delivery via its 2017 acquisition of Shipt, and rolled out drive-up online order pickup to many of its stores. Target COO John Mulligan said these alternative fulfillment methods cost 90 percent less on average than fulfilling from a warehouse.

"With these kinds of investments in every delivery method, we lowered the reverence unit cost of fulfillment by 20 percent, driven by our fastest-growing fulfillment methods like ship-from-store and Drive-Up," Mulligan said. "By fulfilling closer to the store shelf, adding new delivery options and optimizing our operations, we saved hundreds of millions of dollars in fulfillment cost in 2018."

Looking ahead, Target is forecasting 2019 earnings in the range of $5.75 to $6.05 per share, ahead of the analyst estimates for $5.61 per share.

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