A worker delivers an order to a drive up customer at a Target store on August 19, 2020 in Miami, Florida.
Joe Raedle | Getty Images
Target is rolling out a new perk to get shoppers to stop by its stores: Customers can return without leaving their car.
The curbside return service, which began last week in about a quarter of Target’s nearly 2,000 stores nationwide, will be available across the chain later this summer.
Target is sweetening its curbside pickup service, Drive Up, to attract and retain customers as the retailer braces for a potential sales slowdown and tries to hang on to pandemic-fueled earnings. Total annual revenue grew approximately $31 billion or nearly 40 percent from fiscal 2019 to 2022.
Now, as shoppers become more budget-conscious and buy fewer discretionary items, Target said it expects comparable sales to go from a low-single-digit decline to a low-single-digit increase this fiscal year. On an investor day in February, it forecast full-year earnings per share of $7.75 to $8.75, below Wall Street expectations of $9.23 per share, according to estimates by StreetAccount.
The company hopes convenient perks like curbside returns will boost customer retention and lift sales.
“Every time we remove the friction from our guest experience, it benefits guests and benefits Target because they deepen their relationship with us,” said Mark Schindele, Chief Stores Officer. “We’ve demonstrated that with Drive Up in general. Guests experience that service, love it, and then shop at our stores more often.”
Curbside pickup has become a major selling factor for retailers’ e-commerce businesses, especially as shoppers have sought to avoid crowds during the Covid pandemic. For some shoppers, the habit has stuck as work and home hours are busier and commutes have returned, and retailers including Target and rival Walmart are now aiming to capitalize on that.
Click-and-collect, a term used to describe buying online and picking up purchases outside or in-store, grew from 6% of overall US e-commerce sales in 2019 to 11% in 2019. 2022, according to data from Euromonitor, a market research company.
Delivery still accounts for the majority of online sales, but click-and-collect generated around $114 billion in sales in 2022, up from $36 billion in 2019, according to Euromonitor.
In the United States, the vast majority of click-and-collects come from outbound pickups, said Bob Hoyler, sector manager for retail research at Euromonitor.
The market research firm expects click-and-collect dollar sales to grow 8% this year, compared to 2% for delivery. The growth will be fueled by consumers opting for curbside pickup to avoid delivery fees or shipping minimums at a time of heightened price sensitivity, Hoyler said.
Target debuted the Drive Up in 2017 as a test run in Minneapolis, where the company is headquartered. It expanded service to stores in all 50 states in 2019. It added fresh and frozen groceries in 2020 and added wine and beer the following year.
Last year, the retailer expanded the service to allow shoppers to order a Starbucks drink to be retrieved when they pick up their order at the curb. The service is available in approximately 240 points of sale.
Sales made through Drive Up grew more than 70% in the fiscal year ended January 2022, in addition to booming more than 600% during the previous fiscal year, the company said. Drive Up sales grew more than 10% in the last fiscal year.
Target’s same-day services, which include Drive Up, accounted for more than half of digital sales at the end of January as consumers embraced the convenience. Same-day services also include Target Shipt’s proprietary delivery service and Order Pickup, which allows shoppers to pick up an online purchase within a store.
The average dealer fulfillment cost per unit has fallen 40% over the past four years as those services have grown, Chief Operating Officer John Mulligan said at an Investor Day in February. More than 95% of Target’s total sales, including digital sales, are in-store.
Other retailers have added to curbside pickup. Walmart rolled out curbside returns in all of its stores ahead of the 2022 holiday season. Dick’s Sporting Goods added curbside returns to its services in 2020 and is offering it in all of its stores.
Neither company would quantify the use of curbside pickup or returns, but Walmart said it has seen nearly double the volume of customers using curbside returns since its launch across the chain last fall than it has this month.
At an investor event earlier this month, Walmart CEO Doug McMillon said the retailer is also competing for affordability. He credited pickup and delivery for driving growth in recent years and said the company’s recent survey results show customers are choosing the big-box retail giant to save time and money.
Yet other retailers like Kohl’s have eliminated curbside pickup. It ended the service last summer, replacing it with an in-store self-pickup service.
The company’s move to self-pickup is part of efforts to cut costs, including by reducing its payroll, chief financial officer Jill Timm said at a Goldman Sachs conference in September. You mentioned that Kohl’s is also testing self checkout and self return.
For some retailers, the time and labor of curbside pickup can be hard to justify, especially as it encourages shoppers to stay in their cars rather than walk into stores where they can fill their carts with more purchases, Euromonitor’s Hoyler said.
These concerns have fueled skepticism about curbside returns even within Target.
The majority of Target returns are done in-store, according to the company. Within a store, a shopper may exchange a returned product for another or pick up an item on impulse.
At Target’s Investor Day in late February, Citibank analyst Paul Lejuez asked whether the retailer would ultimately lose out on buys adding curb returns.
Schindele, chief store officer, said Target focuses on a customer’s lifetime value, not just the economics of a single transaction. He said allowing curbside returns also helps the retailer get unwanted items back on the floor faster and reduces the cost of mail-in returns.
He added that curbside pickup still inspires browsing and other purchases. On average, about 20 percent of customers who pick up Drive Up orders also make a same-day in-store purchase, he said she.
“What we find is that when a guest uses Drive Up and it could be Drive Up returns, it could be Drive Up purchases, we find that they spend the most money in-store over the course of the year.”
During the curbside returns tests, some shoppers stopped just to return an item, Schindele said. Others have picked up their purchases while making a return. Still others picked up items they’d purchased, returned them, and grabbed a drink at Starbucks.
For Target, curbside returns could serve as a differentiator and complement to the mix of merchandise it sells, Hoyler said. Target’s sales focus is on general merchandise, such as clothing and beauty products, with only about 20% of its annual sales coming from groceries. That’s far less than Walmart, which gets nearly 60 percent of its annual U.S. sales from groceries.
That general merchandise tends to be returned far more often than items like milk and bananas, he said.
