I remember only a few years ago the millions of memes about Target and how people would go there to buy a loaf of bread only to return home with a bunch of clothes and appliances. But in more recent years, I have seen lots of posts about empty shelves, strategic mistakes, or poor results.
On the ecommerce side, I must admit I am not impressed with the company, and believe they made a lot of mistakes over the years that cost them significant market share in ecommerce. Following the release of the Q3 earnings report, I’d like to go over the results, what I think went wrong on the online side, and what I think Target could have done better.
Q3 Earnings and Target’s Ecommerce Performance
Target released its Q3 FY25 earnings on November 19, 2025. The numbers tell us a story of constant decline. Net sales hit $25.3 billion, down 1.5% from $25.7 billion in Q3 2024. Comparable sales (excluding noise from store openings and closures), are down 2.7% YoY, for the third straight quarter of negative comps. Store traffic is down 2.2%, according to Placer.ai data.
Profitability suffered even more. GAAP EPS were reported at $1.51, down 19% from $1.85 last year. Operating income declined 18.9% to $0.9 billion. Gross margin held at 28.2%, but heavy markdowns ate into profits. Comparable sales are now expected to fall 1-2%, and adjusted EPS is projected at $7.00-$8.00, below last year’s $8.86.
Incoming CEO Michael Fiddelke, speaking on his first earnings call, called the environment “volatile.” He pointed to growth in food and beverage as a bright spot. But the holiday outlook remains dark. Q4 sales are expected to dip in the low single digits.
Ecommerce stands out, and seems to be the only channel still growing. Digital comparable sales increased 2.4% YoY. Same-day services (Drive Up, Order Pickup, and Shipt) now drive over two-thirds of digital sales. Same-day delivery specifically grew more than 35% YoY. Target Circle 360, the $99 annual membership is likely responsible for a lot of these orders with unlimited same-day delivery on $35+ orders.
Digital sales have tripled since 2020. They now represent over $20B a year, or about 18-20% of total revenue. While this sounds like great news, there are still major issues. Average digital AOV decreased 0.5% YoY. Same-day orders tend to be low-margin essentials. Fulfillment costs for Shipt deliveries are two to three times higher than ship-to-home. Efficiency gains in supply chain and digital operations helped offset some pressure, but this may not be enough. Other numbers could look great on paper, like the 17.7% growth in Target ad business. But in reality, Target could have been in a much better spot if they had gone another route 5 years ago.
What Went Wrong : A Decade of Half-Measures
Target’s ecommerce struggles are not new. They come from a decade of treating digital as a side business, not a key component of their strategy. I recently wrote about how omnichannel, and integrating ecommerce within their existing business was the breakthrough that caused Walmart to perform very well online. Target did not have this breakthrough. The company invested hundreds of millions in tech and fulfillment. Yet the strategy remains reactive and defensive, more than transformative. Here are, in my opinion, the biggest flaws.
First, Target relied too much and for too long on pure store-based fulfillment without evolving the model fast enough. They still pick and pack most of the ship-to-home orders from regular sales-floor inventory. It was cheap and effective for years (and worked well for Walmart), but when same-day orders reached 66% of digital sales, it overwhelmed store teams. Aisles became messy, items were frequently out of stock, and staff became frustrated. Walmart faced the same scaling challenge but fixed it with automation, micro-fulfillment centers, and is now opening dark stores.
Next, their marketplace, Target Plus, never really took off. Target carries about 2M SKUs, roughly what you’d find at a Supercenter. That works for groceries and basics, but isn’t ideal for categories like electronics, home improvement, and toys. Shoppers prefer Amazon (600M+ SKUs) or Walmart (400M+ SKUs). I am not saying Target should have 500M SKUs and 60 brands of garlic presses, but their marketplace was too selective, and they failed to attract enough 3P sellers to compete effectively with Walmart, let alone Amazon. As of today, Target has few exclusive brands, no seller incentives, and no logistics integration, while Amazon or Walmart have powerful programs like FBA, MCF or WFS. The 2030 goal of $5B+ (from $1B today) in marketplace sales feels like wishful thinking.
Everyone loves Amazon Prime, and Walmart sees more and more subscribers to their paid membership program. On the other hand, Target Circle 360 launched at $99/year with the main perk being “unlimited same-day Shipt delivery on orders over $35.” No free standard shipping on any amount, no video streaming, no fuel discounts, no grocery perk. As a result, very few customers upgrade from the free Circle base (100 million+ members) to Circle 360. Target basically built a paid tier that only heavy Shipt users would use (for low-profitability orders), while they should have done much more. It takes a lot to get a customer to subscribe to a program, but now that many customers already have Amazon, Walmart, or Costco membership, it will take a lot before they cancel one of them for Circle 360.
Finally, Roundel (formerly “Target Media Network”) underperforms. Target has rich first-party data from 160 million monthly site sessions, but Roundel monetizes at only 0.6-0.8% of sales, while Amazon hits 3% and Walmart 1.5%+.
Overall, Target was very slow to adapt their online strategy, treating it like a side business for too long, while Amazon and Walmart competed for the #1 spot.
What Target Should Have Done in My Opinion
Target still has assets, their brand equity, and a network of 1,900 real estate nodes. The window to catch up is closing. Is it too late? I frankly don’t know. But here is what I think they should have done years ago.
First, build a real marketplace, and be less restrictive on sellers. Attracting quality sellers would be the challenge (I recently explained how it went terribly wrong for Shein recently. However, with Amazon and Walmart fees increasing year after year and millions of 3P sellers struggling to reach profitability, offering temporarily lower fees could help. Target Plus needs a lot more sellers and SKUs within 24 months. I believe it would not take much to reach 100k 3P sellers and 50M SKUs. Let’s remember that TikTok Shop hit $15 billion in U.S. sales in two years, through aggressive campaigns aimed at brands,
Second, either make Target Circle 360 competitive or kill it. And not just as good as Prime or Walmart+, but even better. If Shipt orders cost too much, refocus the efforts on other categories and fulfillment methods. At this point, Target can’t afford to have a weak membership program that also kills their profitability. Target could also take some inspiration from Walmart to improve their logistics, and cuts their fulfillment costs.
Finally, scale Roundel, maybe with an off-site DSP. Target’s data is gold, the demand is strong.
Overall, take online more seriously, and stop seeing it as a side business. Target often discusses it during earning calls, but I find that the actions are not backing up words. Target spent a decade playing defense. The brand and real estate remain, but I don’t know if Target can catch up at this rate. It took Walmart several years to get where they are today, but the environment was much less competitive at the time. Target would need to compete not only with Amazon and Walmart, but now TikTok Shop, Shein, and potentially AI-agents.
Conclusion
Target once turned a quick grocery run into a $200 impulse buy. That magic is fading fast. Empty shelves, shrinking traffic, and a digital strategy stuck in 2015 caused their market share to be disappointing.
The Q3 numbers don’t lie, another quarter of declining sales, lower margins, and an ecommerce business that grows too slowly to offset the losses. Years of treating online as a side business left them with a weak marketplace, membership program, and fulfillment costs eating a significant part of the profits from same-day orders.
The brand is still strong and the real estate is still there, but the window is closing. Will the company be able to become relevant in the upcoming years? I hope so, but based on recent years’ decisions, I remain pessimistic.
https://corporate.target.com/press/release/2025/11/target-corporation-reports-third-quarter-earnings
https://corporate.target.com/news-features/article/2025/11/q3-2025-earnings
https://www.cnbc.com/2025/11/19/target-tgt-q3-2025-earnings.html
https://www.marketplacepulse.com/articles/walmart-marketplace-reaches-420-million-listings
