Why Target’s Booming Business Amid the Pandemic Doesn’t Guarantee Profitability

Despite people making fewer shopping trips during quarantine, Target’s online sales soared nearly 300 percent in the first quarter so far. Noam Galai/Getty Images

While most businesses crater in the middle of a pandemic, essential shops like Target are actually scrambling to meet skyrocketing demand as customers stock up on food and household necessities more often than usual.

In the first quarter (starting February 2) so far, Target has already seen a seven percent uptick in same-store sales, CEO Brian Cornell said on Thursday. The increase was primarily driven by a nearly 300 percent jump in online sales, which offset declines in its 19,000 brick-and-mortar stores.

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That doesn’t mean Target is going to have a lucrative quarter, though. Cornell warned that Target will likely see lower profits this quarter as the retailer sells fewer high-margin items, such as clothing, and spends more to keep employees around.

The news sent Target shares tumbling over 5 percent in Thursday’s early trading hours.

In the first quarter so far, sales in food and beverage category increased 20 percent, while apparel and accessories fell more than 20 percent. Cornell said Target has spent more than $300 million since the coronavirus outbreak on pandemic-related employee expenses, including paid sick leave. The company expects labor cost to continue rising until the pandemic ends. Also on Thursday, Target said it will extend the temporary $2 hourly wage increase for store employees until May 30, along with additional child care benefits and paid leave policy for older or at-risk employees.

Yet, in the long term, Cornell expects consumers’ change of shopping habit (from in-store to online) to stick even after the pandemic passes—particularly the use of Target’s new personal shopping delivery service, Shipt—allowing the company to come out of the crisis in a strong position.

“I certainly think that going forward, for the foreseeable future, consumers are going to take advantage of that one-stop shop,” Cornell said in a CNBC interview on Thursday.

He acknowledged that near-term future is still full of uncertainties. “There’s going to be several more months where there’s going to be significant concern as we work through this pandemic…Unfortunately, I don’t have a crystal ball.”

Why Target’s Booming Business Amid the Pandemic Doesn’t Guarantee Profitability