Target is planning to expand its same-day delivery services (TGT, AMZN, WMT)

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Target reported earnings for its fiscal Q1 2019 (ended May 4, 2019), announcing that it brought in $17.4 billion in sales, up 5.1% year-over-year (YoY). Over 7% of these sales originated in Target’s digital channel, giving it digital sales of over $1.2 billion for the quarter, up 42% YoY after only growing 31% YoY in the previous quarter.

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And "well over half" of that growth can be attributed to the retailer’s same-day fulfillment services including Order Pickup, Drive Up, and delivery through Shipt.

Here’s what it means: The retailer’s ongoing commitment to offering convenient fulfillment options appears to be paying off as it’s trying to be "America’s easiest place to shop," saidCEO Brian Cornell on the company’s earnings call

Target plans on expanding its same-day services further, continuing its efforts to win over consumers with fast and flexible fulfillment.Target has enabled consumers to get products quickly by leveraging its stores for Drive Up and Order Pickup.

And its subsidiary Shipt makes same-day delivery to consumers’ homes possible. This allows consumers to shop with Target however they want to — in-store, pickup, or delivery — which appears to be part of a broader initiative focused on convenience that’s seen the retailer make other moves, like offering free two-day shipping over the holidays.

These efforts have the potential to push Target’s digital performance further as they reach more markets and attract additional consumers.

The bigger picture: Target’s success with same-day fulfillment may position it to succeed even as Amazon and Walmart pivot to one-day delivery, but it will need to lower its fulfillment costs.

The retailer may be well prepared to take on the industry shift toward one-day delivery. Target has yet to make a play to match Amazon’s and Walmart’s promises to make one-day delivery the norm in the near future, but with same-day delivery thriving already, it may not need to. If it properly promotes its same-day capabilities, it could appear even faster. And leveraging that same fulfillment network to offer one-day delivery of more products may be possible since Target doesn’t operate a marketplace the size of Amazon’s or Walmart’s that includes third-party sellers, which makes same-day and next-day delivery more difficult endeavors for them.
But Target’s gross margin rate continues to be impacted by digital fulfillment costs, something it will need to get under control going forward.Its gross margin rate was 29.6% this past quarter after being 29.8% in 2018, and digital fulfillment and supply chain costs were cited as the cause. To fully reap the benefits of same-day delivery and its popularity, Target needs to continue to invest in its network so fulfilling those orders doesn’t prove too costly, and additional initiatives like offering consumers a discount to consolidate their e-commerce orders can help too.

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