Target shoppers can now make a return without leaving the car

Target has a new incentive to get customers to visit its stores. Customers can return items without having to leave their cars.

By the end of the summer, Target will offer curbside returns in all of its stores. The service began last week, and is available at about a quarter (or roughly 1,500) of Target's 2,200 nationwide.

Target has boosted its Drive Up curbside pickup service to attract and retain clients as it prepares for a possible sales slowdown. The retailer is also trying to hold on to gains fueled by pandemics. Total revenue increased by nearly 40%, or about $31 billion from fiscal 2019 to fiscal 2022.

Target expects that comparable sales will range between a single-digit decrease and a single-digit growth this fiscal year, as consumers become more budget-conscious and purchase fewer discretionary products. In February, at an investor's day, Target projected earnings per share for the full year between $7.75 to $8.75. This was below Wall Street expectations of $9.23, according StreetAccount estimates.

The company is hoping that convenient benefits like curbside returns can boost customer loyalty.

Mark Schindele, Chief Stores Officer at Target, said: "Anytime we remove friction from the guest experience, it benefits both guests and Target because they deepen our relationship with them." We've seen that overall with Drive Up. The guests love the service and come back to our stores.

Curbside pickup was a major sales driver for retailers e-commerce business, particularly as customers tried to avoid the crowds during Covid pandemic. Some shoppers have adopted the practice as their work and home lives are more hectic and they are commuting again. Retailers like Target and Walmart are now looking to capitalize on this.

According to Euromonitor's market research, click-and-collect sales grew from just 6% in 2019 to 11% by 2022.

Euromonitor reports that click-and-collect sales will reach $114 billion by 2022, up from $36 billion last year.

Bob Hoyler is the industry manager at Euromonitor for retail research.

Market research firm predicts that click-and-collect dollars sales will increase by 8% in this year compared to 2% for delivery. Hoyler explained that the growth is due to consumers opting for curbside pick-up in order to avoid shipping fees and delivery charges at a time when price sensitivity is high.

Target launched Drive Up as a trial in Minneapolis in 2017. In 2019, it expanded the service across all 50 US states. In 2020, it added fresh and frozen grocery items. The following year, wine and beer were added.

The retailer has expanded its service last year to allow customers to order a Starbucks beverage to be picked up when they collect their curbside order. About 240 stores offer the service.

The company reported that sales fulfilled by Drive Up increased more than 70% during the fiscal year ending in late January of 2022. This is on top a 600% increase in the previous fiscal year. The company said that Drive Up sales increased by more than 10% during the last fiscal year.

Target's Drive Up and other same-day services, including those owned by Target, accounted more than half of all digital sales in late January, as consumers embraced convenience. Target's Shipt and Order Pickup are also included in the same-day services. These allow shoppers to pick up an online order inside a Target store.

John Mulligan, the Chief Operating Officer of Target, said that as these services have grown over the last four years, the retailer's average cost per unit for fulfillment has decreased by 40%. This was revealed at an investor event in February. Target stores fulfill more than 95% total sales including digital.

Some retailers offer curbside pickup. Walmart has implemented curbside returns in all its stores before the holiday season of 2022. Dick's Sporting Goods began offering curbside returns in 2020, and now offers them across all its stores.

Walmart reported that curbside returns have nearly doubled since its introduction last year.

Walmart CEO Doug McMillon stated at an investor event held earlier this month that the retailer competes on convenience as well. He said that pickup and delivery were responsible for the growth of the retailer in recent years. Recent survey results also showed that customers choose Walmart to save money and time.

Other retailers, such as Kohl's, have also eliminated curbside pick-up. The service was discontinued last summer and replaced with a self pick-up service in the stores.

Jill Timm, the Chief Financial Officer of Kohl's, said at a Goldman Sachs Conference in September that the company is moving to self-pickup as part of its efforts to reduce costs, which includes reducing payroll. She added that Kohl's also tests self-checkout and self-returns.

Euromonitor’s Hoyler explained that curbside pickup is not always a good idea for some retailers. This is because it can encourage shoppers to remain in their vehicles rather than enter stores to fill their shopping carts.

These concerns also fueled the skepticism about curbside returns at Target.

Target reports that most returns are done in the store. Shoppers can swap out returned products for other items or purchase impulse purchases inside a store.

Citibank analyst Paul Lejuez questioned Target's investors at its investor day held in late February if curbside returns would result in the retailer losing out on sales.

Schindele, Target's chief store officer, stated that the company is not only concerned with the cost of one transaction, but also the value of the customer over the long term. He added that curbside returns help the retailer return unwanted merchandise to the sales floor quicker and reduce the cost of mailing in returns.

He said curbside pickups still encourage browsing and other purchases. He said that on average, 20% of Drive Up customers make a purchase in the store the same day they pick up their order.

We find that guests who use Drive Up - whether it's Drive Up purchases or Drive Up returns - spend more in the store.

Schindele reported that during the tests of curbside return, some shoppers stopped just to drop off an item. Other shoppers have made purchases and returned them. Others have returned items, retrieved the purchases and received a Starbucks beverage.

Hoyler stated that curbside returns for Target could be a differentiator as well as complement to its merchandise mix. Target's focus on sales is general merchandise such as apparel, beauty products and other items. Only 20% of Target's annual sales come from groceries. Walmart's annual U.S. grocery sales are nearly 60% higher.

He said that general merchandise is returned more frequently than milk or bananas.