Target (TGT) Making Money amidst the Amazon Apocalypse

Target (TGT) is making money amidst the Amazon apocalypse but how long can it survive?

Target (NYSE: TGT) will survive longer than you might think because of a clever utilization of cutting edge-technology. For instance, Target is deploying a mobile checkout solution called “Skip-the-Line.”

Will Skip-the-Line Help Target (TGT) Make Money?

Skip-the-Line allows Target (TGT) associates to accept credit card, debit card, and check payments from mobile device, a press release claims. Thus, consumers can pay for merchandise without going near a register.

However, Skip-the-Line is about efficient store operations not customer convenience. To explain, Target could reduce the number of cashiers and registers; and associated costs, if Skip-the-Line succeeds. Thus, an obvious benefit of Skip-the-Line is less need for the expensive holiday staffing.

Additionally, lines could be shorter and faster which will make Target more attractive to shoppers. I have walked out of stores without buying because of long lines. I imagine I am far from alone.

Skip-the-Line could enable Target to reduce the number of registers in its stores. Hence, Target could remove registers and replace them with displays to sell more merchandise.

Therefore, Skip-the-Line is automation designed to make Target stores more profitable; by reducing the need for employees. Hence, cynics will charge Skip-the-Line kills jobs.

Target (TGT) is not Accepting Apple Pay

Interestingly, Skip-the-Line will not work with mobile wallets like Apple Pay and Google Pay. Target (TGT); like Walmart (NYSE: WMT), refuses to accept those NFC payment solutions.

Instead, shoppers have to access Apple Pay through the Target app. Target only accepts Apple Pay through its app. Thus, Target is trying to force consumers to use its app for payment.

Target is forcing customers to use its app because it does not trust Apple’s (NASDAQ: AAPL) security features. Moreover, Target apparently trusts Alphabet’s (NASDAQ: GOOG) security even less its app does not accept Google Pay. On the other hand, Target’s app will accept PayPal (NASDAQ: PYPL).

Is Target (TGT) Making Money?

Target (TGT) is making good use of technology but is it making money? The answer; provided by the latest financial numbers, is yes.

Target recorded a gross profit of $5.537 billion on $17.776 billion in revenues for 2nd quarter 2018. In addition Target reported an operating income of $1.333 billion and a net income of $799 million for the same period.

In addition, Target recorded an operating cash flow of $2.21 billion and a free cash flow of $1.192 billion for 2nd Quarter 2018. Beyond that, Target reported cash and short-term investments of $1.18 billion on August 4, 2018.

Can Target (TGT) Compete with Amazon?

Despite those numbers Target (TGT) will have a tough time competing with Amazon (NASDAQ: AMZN).

Amazon has one critical advantage in the retail wars Target lacks. In particular, Amazon possesses a lot of cash.

Retail giant Target is opening its first small-format store in Irvine at University Center on Campus Drive. Store associates Angie Beckham, left, and Stephanie Raish put out cupcakes for the grand opening in Irvine on Tuesday, July 18, 2017. (Photo by Sam Gangwer, Orange County Register/SCNG)

For example, Amazon recorded $20.425 billion in cash and equivalents and $9.340 billion in short-term investments on 30 September 2018. Therefore, Amazon had $29.765 billion in the bank at the end of 3rd quarter 2018. Thus, Amazon’s stash of cash is nearly 15 times larger than Target’s.

Under those circumstances, Amazon can easily afford to open thousands of Go cashier-less stores to compete with Target. News reports claim Amazon plans to open up to 3,000 Go stores in American cities.

Hence, the Amazon apocalypse has arrived in America’s cities. Moreover, Target is ground zero for the Amazon Go attack. Amazon Go threatens Target directly because it locates stores in urban middle-class neighborhoods. The urban middle class has long been one of Target’s core markets.

How Target (TGT) will compete with Amazon Go with Skip-the-Line

Target (TGT) is positioning itself to compete with Amazon Go through Skip-the-Line.

For instance, Target can offer cashier-less checkout with Skip-the-Line without adding expensive infrastructure. Therefore, Target could quickly dump the concept if it proves unpopular.

Consequently, Target can make it easier for customers to pick up ship-to-store online order with the Skip-the-Line. To explain, all customers will have to do is walk up to any Target associate and ask for their order. The associate can use a tablet to locate the order and have the merchandise brought to the shopper.

How Skip-the-Line can Help Target Grow

An obvious added benefit to Skip-the-Line is keeping ship-to-store customers out of register or service-counter lines.

Moreover, an associate with a tablet could reduce lines by asking customers if they want to pay via Skip-the-Line. Therefore, associates will spend all their time stocking and helping customers rather than standing behind a register.

Additionally, Skip-the-Line could make it faster, easier, and cheaper for Target to open new stores. To clarify, Target might open new stores with fewer registers and no customer service desk.

An obvious long-term goal of the Skip-the-Line is stores without cash registers. Thus, Target could open up in empty stores, buyout smaller chains, or open pop-up stores in malls and other retailers’ locations instantly.

A Target pop-up store inside a Kroger supermarket, a mall, or even a subway station for example. Obviously, Skip-the-Line will enable to open pop-ups all over the place without registers.

Another use for Skip-the-Line will be to allow delivery drivers to collect payment directly from customers. To explain, the driver will carry a Skip-the-Line device that will collect payment from the customer before delivery.

Is Target (TGT) a Value Investment?

Skip-the-Line makes Target (TGT) a potential growth stock but is it a value investment? I say yes, because of Target’s reasonable price and great dividend.

For example, Target shares were trading at $87.60 on 8 November 2018. Hence, the market reasonably prices Target.

Impressively, Target has experienced 50 years of dividend growth according to Dividend.com. More importantly, Target delivered an annualized payout of $2.56, a dividend yield of 3.03%, and a payout ratio of 47.6% on 4 November 2018.

Target shareholders will receive a dividend of 64¢ on 10 December 2018. That dividend grew by 2¢ during 2018, Target paid 62¢ on June 10, 2018.

If you are a looking a strong retailer with a great dividend and growth potential, I would recommend Target (TGT). Target is still a good value investment despite the Amazon apocalypse.

 

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