Target recently announced its Q2 earnings with strong performances, beating estimates in revenue and same-store sales. Much was also made of the company's new approach to its physical footprint with an emphasis on renovations and mini-stores.
The strong offline numbers did not come as a huge surprise as Target visits saw a strong pickup from Q1 as shown in our Q2 Retail Index - Grocery & General Merchandise. Target saw visits in Q2 that were 8% higher than Q1 and this was all before Q3 brought in one of the most important periods for Target growth - Back-to-School.
And the early signs are that Target’s Q3 maybe even stronger.
Target’s traffic patterns are remarkably consistent with this stability coming into full view when analyzing visits from January 2017 through August 18th, 2019. Apart, from two gigantic peaks for the holiday season, traffic remained relatively close to the baseline throughout the year in 2017 and 2018.
The other consistent peak came in August when Back-to-School shopping drove increased visits. In 2017, weekly visits peaked at 10.1% above the baseline, while 2018’s peak rose even higher to 13.8%. But 2019’s Back-to-School season has already gone far beyond these numbers, with visits peaking the week of August 12th at 27.5% above the baseline. This number is already impressive, but the two weeks that preceded it were equally strong with visits that rose 21.1% and 15.3% above the baseline showing that the Back-to-School period may actually be extending for Target. These are all significant Year-over-Year improvements that point to the potential for an exceptionally exciting quarter.
Yet, to truly understand Target’s strength we must put their performance into context, and for this, we must compare to Walmart. The first thing to notice is that both brands are trending very similarly in terms of visits compared to their respective baselines. Target (blue) and Walmart (red) are both enjoying consistent growth supported by massive peaks in the holiday season. And both are enjoying a strong start to the Back-to-School period.
But, Walmart still has a massive lead. In the Grocery and General Merchandise index, we found that Target had 14.8% of the overall visits that went to ten top Grocery and General Merchandise players in Q1, and this is a very high number. However, Walmart had 47.3% putting them in a class of their own in terms of visits.
Target’s Path to Growth?
But there is a difference that gives Target a strong avenue for growth. Where Walmart dominates in overall visits, Target has a significant advantage in the money their customers have to spend. Target sees 17.9% more of their audience making above $100,000 per year than Walmart. In analyzing local competitors across four different states, Target had an advantage in Average Household Income in each case.
And this is important for two reasons. Firstly, Target has launched over 100 mini-stores with plans to produce hundreds more. This new format provides tremendous flexibility in terms of locations, including allowing stores to be placed in environments where rents are high, but average household incomes are also high. Secondly, this data make partnerships with a brand like Disney make more sense as high-cost, branded products may find a strong connection with Target’s audience.
Target had a tremendous Q2, but initial data from the Back-to-School period is already showing that Q3 may be positioned to drive even greater impact. Additionally, location analytics helps to show the potential impact of several of the company's’ recent moves. In short, they help Target take advantage of one of its core strengths in the battle with Walmart for offline retail supremacy.
So how will these moves play out for Target? How will the Back-to-School season impact the wider retail landscape? Follow us here to find out.