February 23, 2024

Target To keep shoppers in its stores, the company has introduced a new perk: Customers can return items without leaving their cars.

The curbside returns service began last week at about a quarter of Target’s nearly 2,000 stores nationwide and will roll out across the chain by late summer.

Target is revamping Drive Up, its curbside pickup service, to attract and retain customers as the retailer braces for a potential sales slowdown and tries to preserve gains from the pandemic. Total annual revenue grew by about $31 billion, or nearly 40%, from fiscal 2019 to fiscal 2022.

Now, as shoppers become more budget-conscious and buy fewer discretionary items, Target said it expects comparable sales to range from a low-single-digit decline to low-single-digit growth for the fiscal year. At an investor day in February, it forecast full-year earnings per share of between $7.75 and $8.75, according to StreetAccount estimates, missing Wall Street expectations of $9.23 per share.

The company hopes convenience perks like curbside returns will increase customer loyalty and drive sales.

“Anytime we remove friction from the guest experience, it benefits both guests and Target as they deepen their relationship with us,” said Chief Store Officer Mark Schindele. “We’ve shown that overall with Drive Up. Guests try the service, they love it, and then they shop in our stores more often.”

Curbside pickup has become an even bigger sales driver for retailers’ e-commerce businesses, especially as shoppers try to avoid crowds during the Covid pandemic. For some shoppers, the commute has returned as work and home schedules become fuller, a habit that has persisted — something retailers including Target and rival Walmart are now aiming to capitalize on.

Click-and-collect, a term used to describe online purchases and curbside or in-store pickup, will grow from 6% of total U.S. e-commerce sales in 2019 to 11% in 2022, according to Euromonitor. research company.

Delivery still accounts for the majority of online sales, but click-and-collect will drive about $114 billion in sales in 2022, up sharply from $36 billion in 2019, according to Euromonitor.

In the U.S., the vast majority of click-and-collect shipments come from curbside pickup, said Bob Hoyler, industry manager for retail research at Euromonitor.

The market research firm expects click-and-collect sales to grow 8% in dollar terms this year, compared with 2% for delivery. The growth will be driven by consumers opting for curbside pickup to avoid shipping fees or minimum shipping costs amid heightened price sensitivity, Hoyle said.

Target first rolled out the Drive Up test in 2017 in Minneapolis, where the company is headquartered. It expanded the service to stores in all 50 states in 2019. It added fresh and frozen groceries in 2020 and wine and beer the following year.

Last year, retailers expanded their offerings Allow shoppers to order Starbucks Drink water to pick up when they pick up curbside orders. The service is available in approximately 240 stores.

Sales through Drive Up will grow by more than 70% in the fiscal year ending in late January 2022, compared with growth of more than 600% in the previous fiscal year, the company said. Drive Up’s sales grew more than 10% in its most recent fiscal year.

Target’s same-day delivery service, which includes Drive Up, accounted for more than half of digital sales as of late January, as consumers love convenience. The same-day service also includes Shipt, a delivery service owned by Target, and Order Pickup, which allows shoppers to retrieve items purchased online in-store.

As those services grow, the retailer’s average fulfillment cost per unit has dropped 40% over the past four years, Chief Operating Officer John Mulligan said at an investor day in February. More than 95% of Target’s total sales, including digital sales, are made in brick-and-mortar stores.

Other retailers have also added curbside pickup. walmart Rolling out curbside returns at all of its stores ahead of the 2022 holiday season. Dick’s Sporting Goods Curbside returns were added in 2020 and are available at all stores.

Neither company quantified the use of curbside pickup or returns, but Walmart said the number of customers using curbside returns has nearly doubled compared to this month since it launched across the chain last fall.

At an investor event earlier this month, Walmart CEO Doug McMillan said the retailer is also using convenience as a competitive advantage. He credits pickup and delivery for driving growth in recent years, and said the company’s recent survey results show customers are choosing the large retail giant to save time and money.

There are other retailers such as Cole’s Curbside pickup has been canceled. It ended the service last summer, replacing it with in-store self-pickup.

Chief Financial Officer Jill Timm told a Goldman Sachs conference in September that the company’s shift to self-service pickup was part of an effort to cut costs, including by reducing the number of employees. Kohl’s is also testing self-checkout and self-service returns, she said.

For some retailers, the time and labor involved in curbside pickup may be difficult to justify, says Euromonitor’s Hoyler — not least because it encourages shoppers to stay in their cars rather than walk into stores, where They’re likely to fill their carts with more items.

Those concerns have also fueled skepticism within Target about curbside returns.

Most Target returns are made in-store, according to the company. Inside the store, shoppers may exchange a returned product for another or make an impulse purchase.

At Target’s investor day in late February, Citibank analyst Paul Lejuez asked whether the retailer would end up missing out on purchases by increasing curbside returns.

Schindele, chief store officer, said Target focuses on the lifetime value of a customer, not just the economics of a single transaction. Allowing curbside returns would also help retailers get unwanted merchandise back to the sales floor more quickly and reduce the cost of mailing returns, he said.

He added that curbside pickup would still drive browsing and other buying behaviors. On average, about 20 percent of customers who take a Drive Up order also make an in-store purchase the same day, he said.

“We found that when customers use Drive Up — whether it’s a Drive Up return, or it might be a Drive Up purchase — we see that they spend more money in-store over the course of the year.”

During the curbside returns test, some shoppers stopped just to return an item, Schindele said. Others have already purchased the item when returning it. Still others retrieved their purchases, returned them and received Starbucks drinks.

For Target, Hoyle said, curbside returns can serve as a differentiator and addition to its mix of merchandise sold. Target, which focuses on general merchandise, such as clothing and beauty products, generates only about 20 percent of its annual sales from groceries. That’s far less than Walmart, which generates nearly 60 percent of its annual U.S. sales from groceries.

General merchandise is returned much more frequently than items such as milk and bananas, he said.