As sales decline continues, Target outlines plan to shift more digital fulfillment to low-traffic stores

It was another rough quarter for Target. Net sales declined 1.5% YoY in Q3, and the company lowered the range of its full-year profit outlook and maintained its expectation of a low single-digit sales decline in the upcoming holiday quarter.

Michael Fiddelke, Target’s current COO and incoming CEO, declined to provide specifics on when the retail giant anticipates returning to growth in a call with reporters on Wednesday.

However, speaking to shareholders, Fiddelke outlined operational changes in the works to help drive sales. One big change is how the retailer handles inventory and distribution across its physical and digital channels.

Target stores with higher foot traffic, for example, are reducing their “mix of brown box fulfillment,” or outgoing delivery orders, allowing associates to spend more time with customers and less time readying inventory for shipping, Fiddelke explained.

At the same time, lower-volume stores in the same market with large back rooms are handling more digital fulfillment. The company piloted this approach in Chicago, and plans to apply it to 35 more markets before the end of the year.

• Notably, despite the net sales decline, digital comparable sales increased 2.4% in Q3, while same-day delivery jumped 35%.

Target also said it’s more focused on keeping popular items in stock. Fiddelke pointed to technology improvements that “forecasts, orders and positions our inventory using machine learning to optimize flow from supplier to shelf,” which appear to be similar to the kind of demand forecasting capabilities rival Walmart has employed.

These changes helped improve on-shelf availability for Target’s top 5,000 items, which represent 30% of total unit sales, by 150 basis points. The approach is reflected in the balance of inventory for the quarter. Inventory was down 2% overall, but up in frequency categories to improve reliability and in-stocks, Fiddelke said.