Target misses the digital bullseye as Apple-fatigue blamed for revenue decline
- Summary:
- Target still hasn't found the digital bullseye, but if it can fix its supply chain issues, there might be some progress.
It’s a tough time for retailers all over, but Target’s got an interesting choice of culprit for its latest downturn. Despite significant ongoing investment in technology and digital, it’s a tech supplier that’s on the receiving end of criticism and that supplier is none other than Apple.
Target CEO Brian Cornell says that sales of Apple products fell by more than 20% year-on-year right across the portfolio of iPhones, iPads, MacBooks etc, which presumably leaves the retailer looking expectantly at the forthcoming product upgrades:
Our guests come to us looking for those products. They’re looking for the newness and the innovation. We’re putting together plans with Apple and our merchandising teams to make sure we’re ready to take advantage of that in the back half of the year.
But it’s not just Apple that’s to blame for another poor quarter from Target. Foot traffic in stores is down 2.2% year-on-year and while digital sales are up 60% quarter-on-quarter, they still only contribute a small percentage of overall revenues. Cornell says a lot of this is down to wider industry sector issues and:
the broad macro challenges facing retailers, including a consumer focused on experiences, the impact of price deflations and a channel shift into digital. These are real challenges, but they are not new to our business. With the right strategy and strong execution, we have demonstrated our ability to perform in the face of those challenges and our expectation is that we will continue to be a top retail performer over time.
Investment is continuing into digital, he adds:
We continue to invest in Target’s digital assets to enhance the guest experience and drive sales in all channels and our results demonstrate the impact of the investments we have made over time.
It’s taking time, but things are paying off, he insists:
For example, several years ago, we had an opportunity to improve our digital conversion. Since then, we have invested to improve our conversion performance by streamlining online checkouts, making the site more appealing and easy to use, enhancing our personalization capabilities and improving search.
As a result, for several years in a row, we have seen meaningful improvement in our digital conversion across all platforms, particularly in mobile. In the second quarter, we launched a brand new fully adapted site, which means we now provide a seamless experience across all platforms from desktop to tablets to smartphones. This is increasingly important because for many guests, a single purchase journey crosses over two or more of these digital devices.
Fix the supply chain
One of the top priorities now is to improve supply-chain execution and that lies at the door of Chief Operating Officer John Mulligan, whose team is now looking at the entire supply chain and find ways to optimize it end-to-end, create efficiencies for the organization and to make the customers’ experience better. That last goal has one powerful metric - can Target ensure that goods ordered online are in stock?
This is a work in progress, he admits, but again, there is progress:
As shipments arrive at our distribution centers (DC), we have made changes to the prioritization of inbound processing, which have already cut the time to unload trailers by more than 50% and we believe we can cut that time even further. In addition, we have improved process flow between our import warehouses and our regional DCs, reducing the average time it takes for an item in an import warehouse to reach the store shelves by more than half.
We are also focused on our outbound processing with the goal of enabling daily deliveries to every store throughout the week regardless of a store sales volume. When implemented, this change will drive additional improvements to store in-stocks while reducing backroom inventory and store workload.
In the digital channel, while we have much work yet to do, we have already reduced out of stocks by more than 50% in the last six months.
Getting on top of this problem is critical as Target customers look to make more use of click-and-collect options. Mulligan states:
In-store pickup is an increasingly popular option for many of our guests. This year, we have seen 50% growth in pickup orders on top of 60% growth a year ago. Year-to-date more than 90% of our pickup orders have been ready in 1 hour and we have implemented process improvements to reduce wait times in stores. As a result, guest satisfaction with the pickup experience is up from a year ago and a higher percent of guests are repeatedly using this service.
Coming up soon, as well as the Apple products upgrades, will be the holiday season, beginning with Halloween. This will be a test of the supply chain improvements that have taken place. Mulligan says:
To prepare for this holiday season surge, we are investing to ensure our stores can continue to deliver a great pickup experience in the face of rapidly increasing demand. In 75 of our highest volume stores, we are increasing holding capacity to allow our team to retreat items more quickly even during peak times. We are also investing in additional digital devices to support peak demand and across all of our stores.
We are rolling out new guidance on how our stores can optimize their storage space to enhance speed and efficiency. New this year, we have implemented systems and processes to allow stores to forecast and monitor pickup demand ensuring we maintain proper staffing levels. In addition, during the holiday season, about 300 stores will be testing separate branded shirts for the team members in the pickup area and distinctive bags for pickup orders to underscore our commitment to this experience.
My take
Wall Street was decidedly unimpressed by Target’s latest quarterly numbers, which turned in a 7.2 decline in revenues. I’m decidedly unimpressed by the speed at which the firm is delivering results on its digital transformation. Getting to grips with the supply-chain issues should help. There’s no point in being able to use an iPhone to place an order if it’s not in stock when you go to pick it up. All told, still way off target.