Unlike many competitors, we have the resource to allow us to invest in the transformation of our business and position Target to compete in this new era in retail.
An upbeat assessment from Target CEO Brian Cornell after another three months of decidedly mixed fortunes for the retailer. On the plus side, profits were up for the quarter ended 29 April to $681 million, up 7.7% from $632 million for the same period last year, beating Wall Street expections. Less happily, in-store sales were down 1.3% as few customers walked the aisles and those that did put fewer items in their shopping baskets.
But one reason to be cheerful was a year-on-year 22% increase in digital sales. This is the result of ongoing investment in technology, says Cornell – $500 mililon in the past quarter and a planned $2 billion across the full year:
Our technology and supply chain investments are focused on delivering a superior guest experience in every channel. In addition to new capabilities like Target Restock, we provide convenience we’re working to deliver a more inspirational digital experience, like the 360 degree shopping experience we just launched on our site.
There’s a focus on supply chain improvement and innovation, says Chief Operating Officer John Mulligan, with the aim of delivering:
faster fulfillment on behalf of our guests, regardless of how they choose to shop.
Such pilot initiatives need to be handled with care so as to ‘keep the lights on’ elsewhere, he adds:
When I moved into my role leading operations, one the first things I’ve learned is that any supply chain test has to be accomplished in tandem with our current operations. As a result, we have to be very thoughtful about how we conduct the test, because we don’t want to make changes that might impair day-to-day reliability.
Mulligan cites the example of the firm’s Tribeca store in New York City which is about to test same day delivery to ‘guests’ at that store:
At checkout, guests will have the option to choose to have their orders delivered to their home later that day in a scheduled delivery window of their choice. This test presents an opportunity to gauge guest demand for this service. In a high traffic location filled with urban guests who will appreciate the convenience. Through this test, we will begin insights about potential operational challenges and determine appropriate pricing and delivery windows based on guest preferences. This will help us to understand the potential to rollout a similar service more broadly overtime.
Another pilot in the pipeline is Target Restock, which will begin rolling out to Twin City’s Red Card holders this quarter. As the name suggests, Target Restrock allows customers to order a restock shipping box filled with essential items, like toothpaste, diapers, coffee and cereal and have been delivered to their homes quickly for a flat fee. Mulligan explains:
For the pilot, guests will have access to more than 8,000 items and will continue to experiment expand the offering based on our learnings and guest feedback. Because the items we package and deliver from a nearby store, orders placed before 1:30 pm will be delivered on the following business day. We built the Target Restock site and supporting back-end operations for Twin Cities’ team member test in just 35 days. Based on what we’ve learned in that test, we will launch an enhanced site for the Twin Cities’ pilot and continue to iterate on the experience.
So far, so digital. But what’s going to be done about that in-store slowdown? Mulligan argues:
We believe that the future of retail is both digital and physical and successful retailers will need to provide an outstanding experience in both. That’s why we’re moving quickly to elevate both the digital and in-store shopping experience, driving guest engagement and sales in every channel.
For digital shopping, the challenge is to make it more experiential, delivering more of the inspiration you can find in a physical store. To elevate the digital experience in furniture and décor, which are already large and growing online businesses for us, we recently rolled out 360 degree shoppable living room, which serve as a digital showroom. Seeing the products staged in rooms in relation to other products helps guests to better understand the size and style of an item making it easier to shop. The experience will initially present about 120 products across four design aesthetics.
The offline stores are an increasingly important part of the digital delivery experience, he adds:
More than 40% of our digital volume already runs through our stores, and we peaked at more than 80% last holiday season because we can offer both order pickup and ship orders directly from our stores. While all of our stores have offered order pick up for several years, we’ve worked hard to improve the experience and encourage repeat uses by our guests. And we’ve seen a pay off from these efforts.
In the first quarter, more than 95% of in-store pick up orders were ready for guests in an hour less, up more than 3 percentage points from a year ago.
We continue to be very pleased with the ability of our stores to accommodate these higher volumes, and our supply chain team is enhancing end-to-end processes to allow for additional volume overtime. And importantly, the ability to ship directly from stores to nearby guests reduces our last mile shipping cost dramatically. Beyond digital capabilities in our stores, we are also investing in our team in the front of the store. We’re providing tools and changing processes to enhance our team’s availability on the sales force and making sure they are available during all hours the store is open.
While there was some reason to be pleased with recent performance, Cornell is to dampen down any idea that he sees the firm as out of the woods yet:
We still have a long way to go; but continuing to focus on executing each and every day, both in our physical and digital channel and that’s not going to change over the next few years.
Wall Street was ready to dump on Target prior to the firm turning in better-than-expected numbers, but there’s still a sense that, as Cornell says, there’s no room for complacency. Target still has an in-store problem. It’s all very well pitching them as pick-up points for online fulfilment, but there are still fewer people going in and browsing. There are plans for an offline overhaul of store design. Whether that’s enough remains to be seen.
Image credit - Target