Target’s first-quarter results across-the-board were less than stellar – including decreased profits, lower-than-anticipated sales, and a dip in same-store sales for the first time since 2009. But, during their May 22 earnings call company officials pointed to the very promising trends revolving around their REDcard Rewards program
Now, with Target’s second-quarter financial results to be released on Aug. 21, Trefis, the company that analyzes how companies’ products impact stock prices, predicts that the company’s rewards programs will spearhead a fiscal resurgence.
Target’s REDcard and pharmacy rewards programs have been important in attracting value conscious customers, according to a Trefis second-quarter forecast.
“The 5% reward loyalty program allows customers to save money when they shop at Target stores using its brand credit card,” Trefis said. “The company has stated that its REDcard customers tend to visit twice as often as its regular customers and spend about 50% more.”
What’s more, in the past three years, Trefis noted there has been a significant increase in the total REDcard penetration – going from 5.9% in 2009 to 13.6% by the end of 2012.
“With rising popularity of REDcard shopping, we expect greater store traffic at Target which will aid its comparable store sales growth,” Trefis said. “Additionally, the company’s relatively new loyalty program (pharmacy rewards) might also have some positive impact. Pharmacy guests have shopped at Target stores about three times more often and spent 50% more than the non-pharmacy guests.”
Target has struggled in the past two quarters primarily due to weak consumer spending in the U.S, Trefis said. The U.S. retail market showed positive growth during the months of May, June, and July due to a slight decline in the unemployment rate.
Target’s international presence is very small, but in the first quarter it opened its first 24 stores in Canada and received positive customer response. Target started its operations in the region by opening 24 stores in March that generated $86 million in sales with gross margin of 38.4% (significantly higher than the U.S. segment), according to Trefis. The company’s performance in Canada will set the tone for its future expansion in other international markets such as Brazil and Mexico.
Gregg W. Steinhafel, Target’s President and CEO, said in May that the company plans to open a total of 124 stores in Canada by year’s end. As they are in the U.S., Steinhafel said REDcard Rewards will be a key differentiator for Target in Canada and “we are encouraged that REDcard penetration of sales in our Canadian segment was ahead of plan in the first quarter.”
Steinhafel said Target plans to invest to drive adoption of the 5% REDcard Rewards and Pharmacy Rewards loyalty program, “which have proven to be unique and powerful differentiators and sales drivers. Both of these programs offer guests the opportunity for even greater savings, leading them to shop more merchandise categories more often.”