Walmart and Target Stores Click with E-Commerce

The Discount Retailers Sales Surge as They Use Online Shopping to Fill Brick-and-Mortar Stores.

Sales at Target stores are growing at the fastest pace since 2005 as the number of visitors surge at a record rate. At Walmart, sales are spiking quicker than any time in the past decade as more shoppers pour through the door. The strategy behind the crowded brick-and-mortar outlets? Getting more people to sit at home using their computers and phones to shop.

That seeming contradiction, betting online sales will boost business at physical stores, and vice versa, is proving to be successful so far for the two retailers revamping locations to add conveniences that shoppers now expect: quick home delivery and in-store pickup.

"The way they combined their stores with pick-up and digital is the future of retail," said Warren Terrace, executive vice president and co-founder at retail brokerage First Commercial Realty and Development Co. "They’re growing like mad."

Target offers pick-up service at more than 800 stores, while Walmart expects its grocery delivery service to have the capacity to reach 40 percent of the U.S. population by the end of the year.

Target offers pick-up service at more than 800 stores, while Walmart expects its grocery delivery service to have the capacity to reach 40 percent of the U.S. population by the end of the year.

Shoppers can now order online and pick up groceries at more than 1,800 Walmart locations. Target offers pickup service at 800 locations, up from 50 at the start of the year. Both fulfill many online orders from stores, slicing distribution costs and creating customer convenience, the companies said.

It’s had an impact: Digital sales at both companies shot up 40 percent in the second quarter.

Even so, brick and mortar stores are still outpacing online sales. Of the $1.32 billion in total retail sales in the second quarter this year, e-commerce accounted for only 9.6 percent, according to the U.S. Census Bureau.

A vast and growing network of physical stores give the Minneapolis-based Target and Bentonville, Arkansas-based Walmart one big advantage over the e-commerce behemoth Amazon.

Target and Walmart are increasingly using those stores to drive both online and brick-and-mortar sales - and to deliver goods, often within hours.

Equity research firm Cowen said in a report that Target’s 1,800-plus stores are within 10 miles of 75 percent of the population. Walmart said its grocery delivery service is on track to reach about 40 percent of the U.S. population by the end of the year.

If you’re a retailer, "you want to be a Target or a Walmart," said Joe Scaretta, co-founder and chief executive of CS Hudson, a real estate project management firm. "From a technology standpoint, they’re focusing on the same things, reducing friction points for customers."

They are focusing on how to get people in and out of the store quickly while offering a pleasant experience, Scaretta said.

Target is rapidly building and remodeling small-format stores across the country. Last year, it announced an ambitious $7 billion, three-year plan to remake itself, saying it wanted to "grow sales faster and adapt to guests' rapidly changing preferences." Target Chief Executive Brian Cornell said the company is ahead of pace.

By 2020, the company expects to have remodeled more than 1,100 stores as it revamps its digital channel and supply chain. By next year, it plans to operate more than 130 small format stores, it said last year. It now operates 26. The company projects it will spend $3.5 billion this year on capital investment.

Walmart has largely abandoned a similar urban, small-store-format strategy it launched years ago. Last year, the company said it planned to open 40 supercenters in its 2018 fiscal year. which stretches until late January, and 15 supercenters and 10 neighborhood markets in fiscal 2019. It opened 89 stores last year, according to analytics firm Coresight Research.

The landscape is shifting so rapidly that Walmart increasingly thinks in terms of months, not years, Walmart Chief Financial Officer Brett Biggs told investors in May.

"We used to have this annual strategic planning and financial planning calendar," Biggs said. "We still have that kind of discipline, but things are moving so much faster."

Though the economy is booming and consumer sentiment is upbeat, the companies should be given proper credit for their success in navigating the shifting retail landscape, said Eric Carlton, vice president at commercial brokerage Collier’s International.

While other discount retailers are also opening stores, many are doing just the opposite. Just last week, footwear retailer DSW Inc., department store operator Stein Mart and Victoria’s Secret brand owner L Brands Inc. announced they were closing a combined 98 locations.

"They [Walmart and Target] had to make these changes, and they did," Carlton said. "What they’re doing is working."

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Taylor Martin