While Target's holiday growth is respectable and makes it a holiday winner, we believe that performance should and could have been better. Prior year comparatives, when same-store sales fell by 1.3%, are very weak and since that time Target has undertaken a raft of initiatives that should have boosted performance.
All that said, the growth does indicate that Target is on the right track and that its various ventures are starting to pay dividends. However, we believe that it also highlights some deficiencies in execution - especially in stores.
The new own-label ranges in apparel and home are compelling and provided a strong point of difference across the holiday period. However, in many stores, the impact of these collections was minimized by poor merchandising and display. This reduced both conversion and sales and created many lost selling opportunities. Performance online, where these ranges are easier to shop, was much stronger.
Target's holiday focused Wondershop is another example of a lost opportunity. Like last year, Target's range of holiday decorations and sundries was comprehensive and, in our view, one of the best in the market. However, also like last year, Target buried this offer at the back of the store and, as a consequence, lost customers. We note that more effort was made to signpost the collection this year, but this proved to be inadequate.
Food performance was reasonable, and our data suggest that sales growth was supported by lower price points. However, seemingly little effort was made to push holiday food and drink, especially at the premium end of the offer. In our view, Target's holiday food proposition was extremely lackluster compared to competitors.
Digital was an undoubted success with robust online growth underpinning performance. We are encouraged to see stores fulfilling 70% of digital volume over the period, and believe this will allow for a better margin outcome. However, we also think Target needs to make stores more compelling so that those customers collecting items in shops browse and buy more while doing so.
Overall, this is a positive outcome. It shows Target is doing the right things and that its ideas have merit. However, it also indicates the need for more care in execution, a faster roll-out of the initiatives, and a greater sense of ambition. Ultimately, Target is doing well, but it could be doing better.