As the pandemic changed the way people shop, Target stayed one step ahead of most competitors, quickly expanding options for customers to buy products without shopping in stores.
The result: sales growth of $15 billion, more than the past 11 years combined, and a $9 billion gain in market share, the company said Tuesday.
Now, analysts are wondering how the Minneapolis-based retailer will keep its momentum and the market share gains. The company's shares were down nearly 6.8% for the day.
While it will be a hard year to beat, executives said the investments made in the years before 2020 made the difference in reacting to fast-changing consumer habits.
And the company is ready to invest more to be ready for the next disruption in retail, whatever that may be. Target said it will spend $4 billion a year on initiatives including opening small and midsize stores, more remodels to increase in-store fulfillment and maintain safety and adding technology.
"Without our multiyear road map to develop new capabilities and bring them to scale, 2020 could have exposed essential gaps in our business model," said Target CEO Brian Cornell, during a virtual meeting with the financial community. "Instead, it proved beyond a doubt the durability of our model and it signaled our potential for continued growth in years ahead."
Yet in some ways, Target could end up being a prisoner of its own success, said Brian Yarbrough, an analyst for Edward Jones.
It's likely that Target's incredible growth during the past year would have taken another three or four years if it had happened naturally, without the COVID-19 effects, Yarbrough said.
Now, as the nation pulls out of the pandemic, it remains to be seen how much of a slowdown Target and other retailers such as Best Buy might experience, he said.
Unlike competitor Walmart, Target did not give any financial guidance of how it expected to perform later this year.
The company's fourth quarter, which included holiday sales and ended Jan. 30, was the capstone of an overwhelmingly successful year.
Quarterly revenue grew 21% to $28.3 billion, and comparable sales grew 20.5%, led by a 118% bump in digital sales, the company said. Net earnings grew 65.6% to $1.38 billion, or $2.73 a share.
For the entire fiscal year, which ended Jan. 30, Target's sales grew 19.8% to $92.4 billion, as earnings rose 33% to $4.37 billion.
It can't be overstated what a difference a year makes. Around this time last year, Target executives guessed COVID-19 would not have a significant effect on sales for the year.
But with stay-at-home orders issued across the country weeks later and many consumers concerned about in-person shopping, customers rushed to stock up on home necessities such as toilet paper and pantry items in the beginning months of the pandemic.
Shoppers turned in droves to pickup and delivery services throughout the year.
The average transaction amount or basket was 15% more than in the year before, as more customers relied on Target as a one-stop shop for their buying needs.
Executives at Target — which had steadily built out its same-day options before the pandemic — gave a lot of the credit to the company's success with it being well-positioned to offer contactless ways to shop. Stores fulfilled 95% of sales, after the retailer had worked to perfect a store-centric fulfillment model over the past few years.
Same-day services, including from Target-owned delivery service Shipt, grew 235% during the fiscal year. Target's digital sales grew by nearly $10 billion.
Target invested about $9 billion over three years to overhaul many of its stores and make other improvements as consumers were slowly shifting to online shopping before the pandemic. The new investment would be $4 billion a year for an unspecified amount of time.
Plans call for 30 to 40 new stores a year, from smaller sizes in urban centers or near college campuses to midsize, 80,000-square-foot locations to fill retail gaps in dense suburban areas. Target opened 30 stores in 2020.
Target also plans to up the number of yearly remodels, with about 150 done before the next holiday season. The number will jump to 200 beginning in 2022.
To help continue to develop its fulfillment capabilities, Target intends to open five sortation centers in 2021 modeled after a sorting center it piloted in Minneapolis late last year. The sortation center helps in the last-mile delivery of items, collecting online orders from stores several times a day and sorting them into routes for carrier delivery.
Target has plans to expand its use of robotics to help sort items and replenish stores, saving workers time.
The retailer is also scheduled to open two new distribution centers, with plans for two more next year.
And it also plans to introduce more new brands, said Christina Hennington, Target's newly promoted chief growth officer.
As customers begin to return to more normal shopping habits, Cornell predicted that consumers will return to shopping for items like luggage and apparel, which had been a softer category for the company throughout the year.
"I don't know if it's going to be the next two months or the next 12 months, but I do think we're going to see a return to shopping for apparel and getting out of yoga pants and starting to dress up to go out to dinner with family and friends," Cornell said.