Target can now be added to the list of US general merchandise retailers, which already includes Walmart, JC Penney and Kohl’s, whose first-quarter results disappointed.

Unusual weather patterns, a payroll tax increase and delayed tax refunds on top of weak economic conditions exacerbated Target’s underwhelming performance. But the outlook isn’t all gloom as the business continues to find ways to drive traffic and transactions.

For the first quarter ended May 4, like-for-like sales were down 0.6%. That was Target’s weakest quarterly like-for-like sales performance since the height of the recession in 2009. But to the retailer’s credit, it was up against
its best quarterly performance in six years: 5.3% in the first quarter of 2012.

Importantly, however, Target is not standing still and a number of key initiatives have recently been launched. The business has established a Technology Innovation Center in the heart of Silicon Valley, which is intended to support the retailer’s ecommerce and multichannel operations.

While Target has some catching up to do in ecommerce compared with rivals such as Walmart, this investment will go a long way towards closing the gap.

Target is also piloting a merchandise delivery and pick-up model in Minneapolis-Saint Paul and San Francisco similar to Walmart’s site-to-store model. This allows Target.com shoppers to order items and pay online and then pick up products in store.

This model is a win-win for both shoppers and the retailer. Shoppers get the convenience of collecting online orders at a local store and waiving shipping fees. Target gains a store visit that it can take advantage of to generate sales.

It has also introduced a digital coupon scheme called Cartwheel, encouraging shoppers to select vouchers online that are redeemable only in stores.

The deals, along with barcodes, can either be printed to take to the store or saved on a mobile device. Cartwheel deals are then scanned at checkout like any other coupon.

These initiatives point to favourable long-term growth prospects for Target, driven by relatively new revenue streams: ecommerce, its recent entry into Canada, and the urban CityTarget format. But at the same time, the business must also figure out how to continue generating sales growth in its raft of existing stores in the near term - no mean feat given ongoing challenges in the consumer environment.

  • Stephen Springham, senior retail analyst, Planet Retail.

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