Target’s Online Sales Sours But High Operational Costs Harm Profits

Target has recorded a boom in its online sales but its earnings restrained the stock performance in yesterday’s trading session. For the past one year, the traditional retailer company invested heavily in the digital operations to compete with leading e-commerce giants such as Amazon. The firm’s online sales surged 28% while its share was 5% down in the early hours of Wednesday.

The Minneapolis-based retailer becomes one of the few leading retailers to record a high traffic of consumers both at the traditional stores and digital platform. The firm’s combined efforts of store modifications, launch of new brands, and extended delivery channels contributed to increased sales.

Today, most traditional retailers including Wal-Mart, Macy’s, Target, and other leading retailer giants are shifting their businesses to digital platforms to get a share of the market that Amazon has dominated for years.

According to Target, the cost of generating more digital sales such as increased employee salaries and wages, increased staffing, and other expenses, affected the firm’s profit margins despite the fact that the firm recorded a high number of customers that drove its online sales.

In the first quarter, Target’s revenue went up 3.4% to $16.8 billion while its net profit increased 5.9% to $718 million compared to the last year’s $678 million in the same period. Furthermore, the company earned $1.32 per share, 6 cents lower than what the market analysts had predicted.

More Focus On Revamping Stores

Recently, the company focused its investments on upgrading its existing stores and opening more outlets. In addition, plans are underway to renovate over 320 stores by the end of the year.

Target intends to increase its operational expenses farther to become the leading online retailer. Though the firm has experienced a high traffic of consumers to its digital stores, some market analysts believe that Target is making the worst short-term decisions that may hurt its profits in the near future.

However, some analysts think Target is on the right track and it’s performing better than other traditional retailers such as Sears and JCPenney that have technically failed to lure customers into its digital platforms and are rapidly losing their significance in the current world of dominated millennials and Generation Z shoppers.

Recently, Target launched two-day free shipping offer for its customers who orders over $35 via its digital platform, which led to huge sales. The company has collaborated with Shipt and other companies to help in delivering same-day services to customers at their door-steps.

 

 

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