It is well-known news that Amazon is much ahead of any other retail store or company when it comes to digital sales. However, the digital push of target seems to be working. The revenues are increasing at a brisk pace. However, the amount of money which it is spending in order to attract the customers online is increasing at an even faster pace. As a result, the profits are shrinking.
Recently, target reported that it experienced a 28% rise in sales. However, due to the reduced net profits as compared to the earlier profits, the shares of target are trading down by 5%.
Many other retailers are also investing in digital marketing in order to increase the online sales. Walmart, Macy’s as well as other big chains are also investing in order to get the digital sales. The amount of money which they are investing is often on the higher side. As a result, the margins are getting squeezed.
According to target, the gross margins were down slightly as compared to last year. This is due to the fulfillment cost on digital orders. Also, warehouse costs, as well as the shipping costs, increase significantly as well.
In many of the cases, there are short-term pains when it comes to searching over to the digital model of business. However, in the longer term, there will be significant profits as well. According to CEO of target, Brian Cornell, the progress which they have made is significant and they are working on long-term strategic goals.
Missed earning estimates:
Due to the reduction in gross profit margins, the earning estimates have been missed. As a result, Wall Street is taking the development pretty negatively. This is the reason why the stock was down by around 5%.
Target is consistently communicating with analysts as well in order to make them understand the long-term growth plan which is in place. With the help of digital commerce, in the future, it will be able to significantly increase its sales as well. This is the reason why in the longer term, it is actually positive for the company.
Even after the recent fate of the target stock, the performance of this particular retail chain is much better as compared to JCPenney and Sears. As a result, the overall stock performance of the company is pretty good enough. None of the investors are actually complaining when it comes to the overall performance of the company. It is only that for this very quarter, it has missed out on the earnings estimates.