February 27, 2014, 12:50 PM

Target books a 20% increase in online sales in Q4

More than half of Target’s online customers now visit via mobile devices, company executives say. They say cross-channel initiatives launched last year, like buy online, pick up in store, are helping to boost e-commerce revenue.

Lead Photo

A look at the chain's e-commerce technology office

Target Corp.’s recent data breach impacted sales toward the end of December 2013 and damaged its reputation, but the retail chain counts the holiday season as a major win for its online channel. Target  managed to pull off more than 20% year-over-year growth in e-commerce revenue during the fourth quarter, company executives told analysts yesterday on its year-end earnings call.

Target would not disclose the cost of the data breach, but CEO Gregg Steinhafel said sales were “meaningfully softer” following its Dec. 19 announcement that criminals had gained access to 40 million of its customers’ credit and debit card numbers and related data by hacking into the payment systems in Target’s U.S. stores. The breach was partly to blame for a 0.4% decline in comparable-store sales during the quarter, which was “well below expectations,” John Mulligan, chief financial officer, told analysts on the call.

The web, meanwhile, showed strength. “Digital channels had a very strong holiday season,” said Kathy Tesija, executive vice president of merchandising. “Thanksgiving was our biggest digital sales day ever, with mobile devices accounting for a full 25% of those sales.”

Target does not publicly disclose its quarterly or full year e-commerce sales figures, but Internet Retailer will release its 2013 estimates in the new edition of the Top 500 Guide due out in late April. Target brought in $1.93 billion in online sales in 2012, according to Internet Retailer estimates.

A major contributor to fourth quarter online sales growth was Target’s new buy online, pick-up in store program launched in early November, which accounted for 10% of online orders placed in the fourth quarter. The percentage of online orders picked up in stores peaked at well over 10% shortly before Christmas, as customers relied on in-store pick up for last-minute gifts, Target executives said.

The program also drove additional revenue for Target as online customers who went to stores to pick up their items also bought other merchandise, Tesija added.

“About 30% of store visits to pick up an online order resulted in store shopping on that same trip, and the size of that store transaction was much larger than an average store trip,” Tesija said.

Given the success of its in-store pickup program, Target intends to expand on it by fall 2014, when it will begin using its stores to ship web orders.

“This new capability will create multiple benefits for both Target and our guests, including shorter shipping times, reduced expenses, lower markdown rates and improved in-stocks,” she added. (Target executives refer to customers as “guests.”) “And because our investments in flexible fulfillment drive greater utilization of our existing stores and distribution center assets, we expect to earn an outstanding return on these investments over time.”

Target also says it “meaningfully increased” its conversion rate on Target.com and through its mobile apps in 2013, though it did not disclose exact figures. Internet Retailer estimates Target’s 2012 conversion rate, or the percentage of site visits that resulted in a sale, at 1.60%.

To improve its conversion rate in 2013, Target took steps to streamline its digital checkout process, including more and higher-quality product information and images. The retailer also enhanced its in-store mobile features, such as providing guided maps enabling shoppers to use smartphones to locate items in its stores.

More of the merchant’s online traffic is stemming from mobile devices—mobile and tablet traffic has now eclipsed desktop traffic, Target says—and the retailer’s mobile savings app called Cartwheel “far exceeded expectations in both adoption and engagement,” she said. Cartwheel is a discount coupon app accessible via Facebook, which allows customers to bring digital coupons into stores.

“Our pre-Black Friday deals resulted in one of the biggest days ever for Cartwheel as they drove one-third of our active users into Target stores on the Wednesday before Thanksgiving.” Target says the app is especially popular among younger consumers.

For the fiscal year ended Feb. 1, 2013, Target reported:

  • Total sales of $72.60 billion, a 0.9% increase compared with $71.96 billion in fiscal 2012.
  • Comparable-store sales dropped 0.4%.

For the fourth quarter, Target also reported:

  • Total sales of $21.52 billion, a 3.8% drop from $22.37 billion in the fourth quarter of 2012.
  • Comparable-store sales declined 2.5%.

Target is No. 18 in the Internet Retailer Top 500 Guide.

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