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Finanzas: Target Battles On In New Economy War

Finanzas: Target Battles On In New Economy War
Mayo 19, 2017

Autor/Fuente: http://www.america-retail.com/finanzas/finanzas-wal-mart-unfaltering-into-earnings/ 👤Periodista: María Luisa Ayala 🕔19.May 2017

 

Summary

  • Target plans to leverage its brick and mortar locations to drive customer fulfillment options.
  • Coworkers testing a next day service where they receive a box of basics like toothpaste or cereal.
  • Target testing replenishment based on appropriate quantities, palettes versus cases versus eaches.
  • Ship from store sales doubled year-over-year and represented 27% of digital sales.
  • Using stores as fulfillment centers allows for quicker and lower cost customer pickup or home delivery.

Though not all “high fives” according to Target’s (NYSE: TGT) CEO Brian Cornell, the company’s first quarter conference call was an interesting mix of sobriety and resolution countered by excitement and confidence. Adjusted earnings of $1.21 were down 6.1 percent from first quarter 2016, but much better than company guidance and analyst estimates of about $0.90. Comps decreased by 1.3 percent driven by lighter traffic, though digital channel sales rose 22 percent. Most watchers were expecting a larger decline.

On the call, the company’s success with store brands and collaborations were detailed. Management also discussed struggles with messaging the “Expect More. Pay Less” proposition, especially in regards to grocery and basics. Though Cornell reiterated his commitment to everyday execution, highlighted on the call were strategic efforts to prototype changes to the supply chain and customer fulfillment options. Brands, messaging, everyday execution and even bathroom policy remain important. However the following article focuses on the efforts to change the supply chain and customer fulfillment options. These changes directly relate to the new economy headwinds the retail sector faces. Taken as a whole, the changes should be relatively quick and meaningfully positive.

Tribeca Delivery and Twin City Restock Pilots

In June Target will test delivery service at their Tribeca store in New York. During checkout customers will be given an option to have their purchases delivered later the same day. Delivery will be available anywhere in Manhattan and parts of Brooklyn and Queens. This prototype will start identifying kinks, costs, and possible service offerings for a potential similar service at of other locations.

In the Twin Cities coworkers themselves are currently testing a next day service where they receive a box of basics such as toothpaste and cereal. The prototype, called Target Restock, will offer 8,000 items. Later this quarter REDcard holders in the cities will be offered the pilot. Interestingly, the initial site and operations were built in 35 days.

Supply Chain Test

Target will also open a new distribution center this quarter located in the Northeast. The facility’s purpose is not to add capacity, which is not needed, but to test replenishment based on a more appropriate quantities, palettes vs. cases vs. eaches. Using a separate facility prevents the disturbance of existing facilities. As with the delivery services discussed above, prototyping will flush out the difficulties while fleshing out the prospects for improved speed and reliability.

Sugerimos: http://www.america-retail.com/finanzas/finanzas-wal-mart-unfaltering-into-earnings/

At a single store in the Twin Cities, the company is currently testing the new replenishment model. The test seems to indicate the plans will reduce both labor and inventory. COO John Mulligan characterized the test as having “early bumps” but not affecting out-of-stocks. The success of new delivery and in-store pickup options is tied to supply chain improvements.

The Numbers

0% of Target’s total digital sales are processed through the stores. On in-store pickup, 95% of orders are ready within an hour and the company is growing the dedicated footprint and coverage for the service. And it should be noted that a significant portion of urban customers prefer in-store pickup to delivery.

Ship from store sales in the first quarter doubled year-over-year and represented 27% of digital sales. Part of the growth came from adding 600 stores as ship from locations. But the 460 stores having the ability in the first quarter last year grew volume by 32% year-over-year. Mulligan added:

And importantly, the ability to ship directly from stores to nearby guests reduces our last mile shipping cost dramatically.

Summary

Despite ongoing challenges, Target is capturing share in the shrinking retail market pie and implementing new economy solutions. Interestingly, Target plans to leverage its brick and mortar locations and existing supply chain to drive customer fulfillment options. Using stores as fulfillment centers allows for quicker and lower cost customer pickup or home delivery. Investments in the supply chain and fulfillment options will be one factor pressuring earnings. But the company is trading at a safe 13 times these now lower expected future earnings, and one is paid to wait with a solid 4.29% dividend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

 

Fuente: SeekingAlpha

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