Retail Insights, Robin’s Blog

Target’s Target

RR Target OmnichannelLast week I blogged about Walmart’s acquisition of Jet.com, for $3.3 billion. In one fell swoop, Walmart gained Jet’s revenues (estimated at over a billion dollars its first year, nonetheless unprofitable), several distribution centers, 12 million SKUs, a growing millennial — and largely urban, customer base (a more upscale cohort than Walmart’s core), 400,000 new shoppers per month, proprietary pricing software and a management team of e-commerce experts.  I called it a win-win deal for both and an accelerant for Walmart’s quest to crush Amazon.

On the other hand, Walmart rival, Target, is ramping up its e-commerce and omnichannel efforts the old fashioned way, by hiring executives from the digital world: specifically, two senior executives from Amazon and one from Apple. Target is also increasing their capital spend on e-commerce, supply chain, logistics and in-store improvements. They are committing at least $2 billion a year beginning in 2017, up from about $1.8 billion spent in 2016.

Target’s CEO, Brian Cornell, means business and is not going to be left behind. With a 31 percent increase in online sales in 2015, while disappointing against Cornell’s promise to Wall Street of 40 percent, he has upped Target’s tech spend going forward. Along with building a team of experts, they are also identifying specific strategies for improvement and growth.

In a recent Fortune article, Cornell was quoted, “So are we declaring victory? Not even close.  These are the building blocks of our future.”

Those Building Blocks

One of the most important building blocks required to perfect the omnichannel model, and thus gain a competitive advantage over pure e-commerce players – notably Amazon – is the seamless integration of the physical and digital platforms with a transactional process. This raises the challenge of total inventory transparency, 24/7, having the right inventory on the right platforms at the right time and never to be out of stock. It also requires the most efficient and effective inventory flow, once a transaction is triggered by a consumer placing an order, whether it is online or in the stores.

So when the CEO of Target declares that they have thousands of retail stores that are also distribution (fulfillment) centers, he is correct. Walmart also made such a declaration last year about its roughly 4500 U.S. stores. Target has 1795 U.S. stores. This store as DC model weighs in at a huge advantage over Amazon’s roughly 180 distribution centers (that are not stores).

With close to 2000 stores/distribution centers, plus their own distribution-to-store centers, Target theoretically should be able to accomplish the “last mile” (delivery or pick up for the consumer), more efficiently, quicker and more effectively than Amazon and other e-commerce-only sites.

However, theorizing and just saying it is a heck of a lot easier than the reality of doing it, as Target is currently struggling with.  It’s one of the main reasons that Cornell hired logistics and distribution whiz kids from the digital world.  It was also one of the more important elements in Walmart’s decision to acquire Jet.com with its rich pool of talent.

However, in Target’s early stages of turning theory into reality, stores in a dual role as DC’s, Target is finding a lot of empty shelves in its stores because fulfilling online orders from the shelves of the stores is happening a lot faster than the flow of replenishment back into the stores from the DC’s.  Exacerbating the situation is the fact that Target has the lowest purchase minimum for consumers to qualify for free shipping among its peers: $25. Amazon requires $35 and Walmart has a $50 minimum. According to the NRF, 66 percent of consumers say free shipping is important when deciding where to shop online.  Therefore, the good news is that Target is gaining more online purchasing. The bad news is more empty shelves in the stores.

Target’s operations chief, John Mulligan told Wall Street analysts, “When you talk to our guests, the number-one pain point is that we’re out of stock.”

To get to the right balance of in-store inventory that can be rapidly replenished, Target is curating across all product categories to assess the most in-demand items and then narrow the assortments. It’s important to emphasize the need for inventory transparency and transactional data, but what’s even more critical, are the skills and expertise in analyzing the data and understanding what part of it should be acted upon, and then finally implementing the plan.

By the way, Target is not alone in this early stage of getting omnichannelling right. Every brick-and-mortar retailer is struggling through this, and the bigger they are, the more complex the solution.

Target is also adding RFID (radio frequency identification) tags to all apparel items. This is another building block for greater supply chain and inventory transparency – the ability to identify where each and every item is located in its journey from supply chain entry all the way through to check out in the store or to point of delivery to the consumer.

Further transparency will be provided to sales associates through handheld devices that are connected to Target’s main systems, which provide real-time product information and other locations for items missing in a particular store.

Finally, Target is providing Bluetooth-enabled beacons for its stores nationwide, which connect with shoppers’ mobile devices as they enter the store, pushing promotions, discounts, and additional purchase suggestions while they are shopping. It also allows customers the ability to request help from a sales associate.

Cornell puts his money where his mouth is. For the first time in its history, Target spent more last year on technology than it did on its stores, including the opening of new stores or remodeling older ones. In addition to the initiatives just mentioned, Target is improving the target.com site as well as mundane projects like improving the reliability of their POS systems, which suffered cash register freezing during checkout.

If You Can’t Beat‘Em, Join‘Em

Another move, unrelated to technology, and what some may think counter-intuitive, is Target’s decision to carry Amazon-branded products once again. I say “once again” because Target carried Amazon’s brands for several years up until four years ago when they removed them. Fire tablets and Fire TV, and Amazon Kindle e-readers are back on Target.com, and will be on its store shelves in October.

Speculation has it that perhaps, rather than competing with Amazon, why not leverage the power of its brand and draw in some of its existing customers and potentially new shoppers seeking the Amazon products. Additionally, it affords in-store consumers the opportunity to physically see and “kick the tires” before purchase.

Furthermore, Target will be able to gain incremental sales by cross-selling some of its own related products such as e-reader cases, television stands, and other accessories.

RR_Target-Won’t-Get-Left-Behind-Rd2Keep Looking Over Your Shoulder, Mr. Bezos

Jeff Bezos declared early on that “day one” is every day for Amazon, and that his driving strategy was to “get big fast,” and then “bigger faster,” (convincing Wall Street that this was more important than making a profit). He was brilliant to recognize the threat of copycats, including those with “deep pockets” like all of the old world legacy giants, such as Target, Walmart and all of the others.

Well Jeff, they’re coming and coming fast. And, with each omnichannel achievement, they get faster. So, a little advice: You should continue your mantra, “get bigger faster.” And need I remind you that if you don’t start opening physical stores/showrooms, when these giants (notably Walmart), perfect the synergies awarded by a seamlessly integrated omnichannel, you might just be another competitor fighting for share of market in a market that’s growing slowly at best, and shrinking at worst.

Welcome to the end of summer.

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