Target plans to expand retail media, delivery hubs in 2023

Digital experience: Retail media and loyalty

For Target, digital sales now represent 19% of the business.

This is the result of concerted expansion over the last several years. More customers shifted to digital during the pandemic, and Target built up ecommerce capabilities to serve them.

“A strong digital shopping experience is every bit as important as the one we create in our stores,” said Chief Growth Officer Christina Hennington. “So, we've been investing to ensure that the experience is seamless across every channel, regardless of how our guests shop.”

Target has made upgrades to the digital shopping experience, boosting discovery capabilities as customers both search and browsing for new products. It is using data and insights from consumers to provide personalized content such as customized homepages and improved search.

This is powered by a group of key services within Target that are designed to be “greater than the sum of the parts,” Hennington said.

Target operates retail media through the company Roundel. The advertising business has grown 60% over the last two years, executives said. But boosting bookings isn't the only goal. The data made available through media is being harnessed to create a better shopping experience.

“To us, Roundel is more than a digital advertising platform or another revenue source on the P&L,” Hennington said. “The goal is for our guests to have a tailored, relevant experience while helping our vendors reach the guests who are most likely to be interested in their products. Said simply, Roundel makes us better merchants, more consistently serving our guests with the products they want. This is why our approach to digital advertising looks different than others.”

Target’s loyalty program, called Target Circle, is another key driver of the digital experience. It has more than 100 million members, and served three times more personalized offers in 2022 than the year prior. Members of the program spent three times more on average over the holiday season, as well.

Like Roundel, the data and insights from Target Circle are also being put to work to help the retailer improve personalization. This shows up not only in the offers through the program, but also homepages and search noted above.

“Roundel makes for a more deeply engaged guests and partners,” said Target CEO Brian Cornell. “And because it gives us a better understanding of our guests' preferences, it makes us an even better and more profitable retailer. So, we intend to place additional emphasis and advancement toward Circle and Roundel in 2023 given the growth potential they'll unlock."

Same-day services

For Target, the store and ecommerce are operationally linked. That’s most evident in the company’s approach to fulfillment. Following a “stores as hubs” strategy, Cornell said 95% of Target orders – whether digital or in-store – are fulfilled by stores.

So the services that the retailer creates to improve the digital experience have space at the store.

Target had some news on this front Wednesday: It is now offering drive-up returns, enabling guests to drop off an item they want to return, just as they would pick up a purchase. The service started as a pilot, and is now going into wide use.

“Not only is this a huge win for our guests who can now do even more drive-up, but it brings more efficiency to our returns process with more resale opportunities and fewer expenses for mail and returns,” said COO John Mulligan. “We're combining the strength of our digital self-service returns process with our industry-leading drive-up experience to meet our guests where they are.”

It underscores the importance of same-day services for Target, which provide customers with the ability to order online and receive an item later that day. These services grew 7% in 2022, and now represent over half of digital sales. They account for 10% of Target’s total sales. Along with curbside, Target also offers same-day delivery through its company Shipt, as well as in-store pickup.

Behind the scenes, Target is also making improvements designed to bring down the cost of packing and delivering digital orders. The average fulfillment cost per unit decreased 40% over the past four years, even as same-day services grew.

Target is expanding its supply chain network beyond stores to realize new efficiency. Earlier this month, it announced plans to invest $100 million to build new sortation centers, which are key to two-day and same-day shipping. It currently has nine such centers, and is planning to have 15 in place by 2026.

It’s a move to invest in future growth that will likely lead to more cities realizing faster service.

“If you look forward..we think there's hundreds of million dollars to continue to unlock with our investment in sortation centers,” said Mike O’Neill, Target’s SVP of financial planning and analysis. “That's a capability that's been our on roadmap for a few years now, but requires scale and density at the market level to unlock, and given the growth over the last three years, we now have that. And so, we think there's opportunity in dozens of metro markets.”