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Target, Wal-Mart see slower online sales

Wal-Mart and Target posted another round of comparable-sales growth during the third quarter, further building the case that their turnaround strategies are working.

But there's one area in which the big-box discounters continue to fall short: online sales growth.

Both Target and Wal-Mart said their same-store sales results during the quarter were boosted by an increase in foot traffic. But it appears that those store visits may have taken a chunk out of their online performances.

Target home page
Source: Target
Target home page

At Target, for instance, online revenues increased 20 percent, adding 0.4 percentage points to its comparable sales results.

While that figure is greater than the 15 percent overall quarterly gain announced by the Commerce Department on Tuesday, it marks another quarter of deceleration for Target. It also fell short of the bull's-eye retailer's goal of 30 percent year-over-year growth during the period, and its plans for 40 percent growth in 2016.

Likewise, online sales growth at Wal-Mart slowed to 10 percent during the quarter, showing that "Target is clearly gaining share," Cowen and Co. analyst Oliver Chen said.

But the battle is far from over. Both retailers are placing a large emphasis on their digital offerings this holiday shopping season, as they struggle to gain an edge against Amazon. That online front-runner has set an ambitious goal of growing its fourth-quarter revenues by up to 25 percent, which would build on what's already a much larger revenue base.

"We feel confident as we enter the holiday season," Target CEO Brian Cornell said.

As it competes for a larger share of the digital pie, Target will once again offer free shipping on all online orders this holiday season.

It's also streamlined the process for sending out online orders, with 462 of its locations capable of shipping items directly from the store. That compares to just 120 that had this capability last year. Paired with two new distribution centers that opened during the quarter, these investments will help the retailer get orders to customers' doors faster.

The company is likewise leaning on its Cartwheel savings app, which Cornell said has been downloaded 20 million times. The CEO also noted that digital sales growth is slowing broadly for retailers, but that Target continues to outpace the industry.

"That's our goal," Cornell said.

Wal-Mart is taking a different approach to digital this holiday, including its controversial decision to maintain a $50 threshold for free shipping. The world's largest retailer recently rolled out a new mobile check-in capability, rebranded its in-store pick-up locations, and released its Black Friday circular on its mobile app ahead of the print version.

And for the first time ever, the vast majority of Wal-Mart's Black Friday deals will be available online hours before its stores open.

"We're agnostic about [where people shop], and so we should be, Greg Foran, CEO of Wal-Mart U.S., said at the time. "Our job is pretty simple: To give the customer what they want."

Despite these plans, some analysts aren't yet convinced that Wal-Mart's investments are bearing enough fruit.

Stifel Nicholas' David Schick told investors on Tuesday, "We believe Wal-Mart should be achieving higher levels of growth in the e-commerce business given investments, changing customer preferences, and the acquisition of [Chinese online retailer] Yihaodian."

Despite their digital challenges, both Wal-Mart and Target posted another round of improved sales results during the quarter, helping to allay investor fears that consumers aren't spending.

"Target putting up a 1.9 percent comp, for a $70 billion company with 20 percent of the mix in that troubled apparel weather-sensitive category, I look at the results and I say, 'You know what, that's pretty good,' " JP Morgan analyst Chris Horvers said.