The Ratings Game: Target filled 70% of online orders in stores, but missed another sales opportunity

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Target missed a chance with customers who were in stores to pick up online orders, analysts say

Target Corp. fulfilled 70% of digital orders in stores during the November and December shopping period, but may have missed a second opportunity to sell customers merchandise, Neil Saunders, managing director of GlobalData Retail, said in his latest note.

“[W]e also think Target needs to make stores more compelling so that those customers collecting items in shops browse and buy more while doing so,” Saunders said.

One of the benefits of the buy-online-pickup-in-store (BOPIS) feature is the chance to draw in customers and entice them into spending a few extra dollars. Target TGT, +3.93%   has the goods, but isn’t maximizing on that promise.

“Target’s holiday-focused Wondershop is another example of a lost opportunity,” Saunders said. “Like last year, Target’s range of holiday decorations and sundries was comprehensive and, in our view, one of the best in the market. However, also like last year, Target buried this offer at the back of the store and, as a consequence, lost customers.”

Read: Kohl’s snapped up market share during the holiday season

Chief Executive Brian Cornell said the retailer “positioned the stores at the center of a continually expanding suite of convenient fulfillment options for filling orders” and invested in store staff to make this 70% level possible.

“Target’s announcement this morning of holiday performance is consistent with our expectations as we continue to believe that its short-term investments in stores and online capability will generate longer-term benefits, which is borne out by these results,” said Moody’s Lead Retail Analyst Charlie O’Shea. “The continued leveraging of the store base to facilitate online shopping is a key component of this strategy, and the level of store fulfillment of online orders for holiday is impressive.”

Moody’s believed Target would have a “strong” holiday performance thanks to in-store pick up and exclusive product lines, which the results confirmed, O’Shea said. On Monday, Target announced a new women’s denim line, Universal Thread.

Read: Retailers report upbeat holiday sales, but investors remain downbeat

Target’s stock is up 3.5% in Tuesday trading after the retailer raised its sales outlook. It also said that new tax reform laws would boost adjusted earnings per share.

Target joins a list of retailers that includes Macy’s Inc. M, +0.96%  , J.C. Penney Co. Inc. JCP, +1.08%   and Kohl’s Corp. KSS, +0.74%   that reported a solid holiday shopping season.

Still, Susquehanna Financial Group analysts led by Sam Poser say retailers and investors should proceed with caution.

“We believe that the best companies will not overreact to the holiday 2017 results, while other companies are likely to react to potentially missed sales and become too aggressive and optimistic when planning 2018,” Susquehanna said in a note.

Don’t miss: Can men save retail? Nordstrom makes big bet on a once overlooked shopper

Analysts outline five “value drivers” for companies in 2018: know who you are, understand and evolve with your customers, consistent and high-quality execution, “never satisfied with the status quo,” and be transparent with investors.

Susquehanna’s top picks for 2018 are Skechers Inc. SKX, +1.37%  , which has a price target of $46 and Lululemon Athletica Inc. LULU, +0.56%  , which has a $93 price target. Both are rated positive.

Analysts rate Wolverine World Wide Inc. WWW, -0.72%  , whose brands include Sperry and Hush Puppies, Ugg parent Deckers Outdoor Corp. DECK, -1.20%   and Under Armour Inc. UAA, -4.88%   negative.

Susquehanna downgraded Under Armour on Tuesday. Shares are down 5% for the day.

Target’s shares are up 23.6% for the last three months, outpacing the S&P 500 index SPX, +0.37%  , which is up 8.3% for the period.

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