Target executive reveals how the company is dominating Walmart and Amazon in the most important category

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Target’s sales are skyrocketing in an area that will determine the future of retail.

Target’s digital sales grew 30% in the last year, “shattering” holiday records and lapping the rest of the industry, the company announced at presentation to investors on Wednesday.

The retailer plans to spend as much as $2.5 billion a year on technology and supply chain initiatives by 2017, up from the $1.9 billion spent last year. For comparison, Walmart CFO Charles Holley told analysts last October the company planned to invest $1.2 billion to $1.5 billion in ecommerce in 2015 and even more in 2016.

The biggest focus: making it more convenient for customers to shop at Target in stores, online, and on their smartphones.

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This drive draws from a recent Target initiative, in which executives visited customers in their homes and learned more about how they shopped. Executives highlighted the results of these visits, especially those with younger consumers, in Wednesday’s presentation.

“He didn’t think about a store experience or a digital experience,” John Mulligan, Target’s chief operating office, said of one millennial he spoke with. “He thinks of it as a Target experience, and he’s not unique from so many of our guests. We have to build our operations through that lens.”

This channel-blind approach plays to one of Target’s strengths: it can offer both online and in-store experiences.

Some of Target’s major success in 2015 occurred at the intersection of brick-and-mortar and digital retail.

Sales from in-store pickups of Target.com orders increased by 60% in the last year. Cartwheel, the chain’s mobile savings app, has been downloaded 22 million times, bringing in $3 billion in sales.

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Looking to the future, the retailer plans to continue to build out its ability to utilize its physical locations in fulfilling online orders.

“Target’s strategy as outlined yesterday to maximize the flexibility of its existing store base and distribution centers to also service its growing, though still relatively small, online business is consistent with our view that brick-and-mortar retailers have significant opportunities and assets to exploit as they move online,” Moody’s lead retail analyst Charlie O’Shea stated following the presentation.

The overlap of ecommerce and physical stores is a major battleground for retailers.

While Amazon has a huge head start on traditional retailers online (the ecommerce giant actually powered Target's online business until 2011), it just recently opened its first brick-and-mortar store in Seattle.

Meanwhile, Walmart is heavily emphasizing “seamless” integration of online and in-store experiences, with new technology like its own mobile payment system.

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