Target's Q2 Growth Fueled by Personalization, Fulfillment, and AI Integration

Target’s second-quarter performance showed a solid 2% increase in comparable sales, meeting the company’s expectations, with total revenue reaching $25.5 billion, a 2.7% rise over last year. This growth was driven by an 8.7% improvement in digital sales and a 0.7% increase in store sales. According to the State of Digital Grocery: H1 2024 Digital Performance Summary, digital grocery sales grew by 2.4% year-over-year, with 69% of all grocery sales being digitally influenced, trends well reflected in Target's results. The retailer’s sales growth in the second quarter was largely due to the rise in digital sales across all six core merchandising categories, further supported by disciplined cost management and enhanced supply chain efficiency.

Key Highlights 

Faster Fulfillment and Same-Day Services

In the second quarter, Target's same-day services accounted for more than two-thirds of total sales, with Drive Up alone generating over $2 billion in Q2 and more than $4 billion year-to-date. Drive Up saw impressive growth, increasing by 14% in the second quarter, building on a 13% increase from Q1. Target's overall same-day services, including Target Circle 360, also accelerated with a 14% rise in Q2.

A key driver of this growth has been Target's sortation center strategy, which has enhanced both delivery speed and cost efficiency. Orders processed through these centers arrive more than a day faster than the network average, and delivery costs are reduced by about 20%. The recent opening of the 11th sortation center in Detroit, expected to serve 3 million consumers and process up to 60,000 packages daily by 2028, highlights Target’s commitment to faster, more efficient fulfillment. Year-over-year, Target's sortation centers have processed 19% more packages.

These advancements align with broader market trends. As McKinsey notes, 90% of consumers view two- to three-day delivery as standard, and 30% now expect same-day delivery. Additionally, 76% of consumers prioritize delivery speed when making purchases. According to Incisiv's industry brief, 81% of brands recognize two-day delivery services as crucial to their shoppers, and superior last-mile delivery can lead to a 10.6% increase in average order value. Target’s strategic focus on faster last-mile delivery through its sortation centers is well-aligned with these expectations.

By improving their fulfillment capabilities through sortation centers and addressing customer demand for fast and efficient delivery, Target is well-positioned to sustain its growth in same-day services.

Assortment Boosts Key Growth

Merchandising and assortment saw solid growth this quarter, with key improvements across multiple categories. Food & Beverage led the way with low single-digit comparable sales growth, driven by seasonal moments and the introduction of hundreds of new products, such as exclusive items like Bubly's Melted Ice Pop Flavor, which quickly became the top seller in its category. Essentials also posted low single-digit growth, with strength in protein drinks, powders, and meal supplements gaining momentum. This performance aligns with Grocery Doppio's Impact of GLP-1: Lower Baskets, Healthier Assortment survey, which identified lean proteins (27%), meal replacements (19%), and healthy snacks (17%) as the biggest winners in alternative categories. Additionally, 77% of grocers plan to innovate and expand their assortments, focusing on portion control and healthier options, a trend clearly reflected in Target's expanding product range and strong performance this quarter.

Driving Loyalty through Personalization 

In the second quarter, Target Circle, with its over 100 million members, added 2 million new users, further demonstrating the strength of Target's loyalty program. During July's Target Circle Week, nearly two-thirds of all transactions were made by Target Circle members, underscoring the program’s deep guest engagement. Beyond engagement, Target Circle provides invaluable consumer insights, enabling Target to deliver personalized offers through its Roundel advertising business, which saw double-digit growth in Q2, positively impacting gross margins. Our latest stat report shows that in-store media advertising has become a key driver, influencing 17% of shopping decisions.

Target’s launch of a new monthly subscription option for Target Circle 360, offering same-day delivery for just $10.99 per month ($4.99 for students), taps into the growing demand for value and convenience. This approach aligns with Grocery Doppio's research, which shows that 93% of shoppers consider price an extremely important factor in their purchasing decisions. Furthermore, 32% of shoppers choose in-store shopping over online due to cost, a trend mirrored in Target's rising store traffic, which has grown by more than 20% since 2019, with guests making nearly 1 billion trips to Target since that time.

The ability to offer personalized promotions and recommendations is becoming essential for grocers. Target's success in offering four times more personalized offers this quarter, compared to last year, aligns with Grocery Doppio’s analysis, which highlights that 77% of grocers agree improving personalization boosts sales. Yet, while many grocers focus on basic personalization (with 59% seeing improved sales), the potential of advanced tactics like microsegmentation and 1:1 personalization is largely untapped, with only 4% of grocers currently scaling these capabilities.

Driving Operational Efficiency through AI Enablement

Target has integrated GenAI into handheld devices across its stores, empowering team members with rapid access to best practice documentation and instant answers to common questions, such as how to sign up a guest for a Target Circle card or restart a cash register during a power outage. Since the full chain rollout, team members have utilized the technology over 50,000 times, with an impressive average chat response time of less than one minute, significantly improving operational efficiency.

This aligns with insights from Grocery Doppio’s  State of AI in Grocery 2024 report, which shows that in 2023, 81% of grocery C-suite executives valued AI adoption as an important necessity, a number that has risen to 86% in 2024, a 6% increase. Furthermore, 71% of grocery executives in 2024 believe that AI will be essential for building operational efficiency, reinforcing the crucial role AI plays in transforming store operations and unlocking a potential value of $2.5 billion.

Future Outlook 

The future outlook for Target’s third quarter is expected to increase from 0 to 2 percent in comparable sales.