We’ve not seen this number of distressed retailers since 2009 in the Great Recession.
In that number, it can be assumed that Target CEO Brain Cornell would include his own firm, which last week saw its stock price plummet on poor numbers and weak forecasts.
Some right-wing lobbyists rushed to claim ‘success’ for a boycott of Target stores over the firm’s transgender bathroom policy, but that’s expedient opportunism that doesn’t stand up to scrutiny. Target’s problems run far deeper than a bunch of bigots having a hissy-fit over lavatory arrangements.
For Cornell, the challenge now is to convince investors that the firm recognises the challenges it faces, is putting in place the necessary investment and actions to address those and to get Wall Street to give him and his management team the time it needs to address this:
We can’t fixate on short-term opportunity. Target is taking the long view. And we can either bemoan the changing conditions in the marketplace, or we can embrace them and double down on our strengths.
These inflection points come around every generation or so. And strong retailers endure, while others, well, they don’t. Pick your era-defining change throughout history from downtown department stores to suburban malls, catalogs, e-commerce. Target not only weathered the storm, we emerged better positioned as a result.
One of the challenges today is inevitably the need to create an omni-channel offering for customers – or guests, as Target refers to them. That means both re-invention of the in-store experience and investment in new digital capabilities.
On the latter point, Target’s management is quick to push the idea that the firm’s digital performance has outpaced the industry, averaging 29% over the last two years. But the reality is that that digital growth that has not fully offset declines in the stores. A new balance needs to be struck.
The shift is underway, insists Cornell, and gaining momentum:
In 2014, more than 93% of our transactions took place in stores, less than 7% digital. That season we had just started shipping from a small number of stores. In 2015, that same timeframe, digital sales reached almost 10% of our total sales. We more than doubled our ship-from store-capability to nearly 500 stores. We fulfilled 41% of all our digital orders inside of a store.
For 2016, just a few months ago, just last year, digital sales climbed to 14%, more than twice what we did two years earlier. We double ship-from-stores again, more than 1,000 stores. Our stores were fulfilling 68% of our digital orders. We finished December with record digital growth, including record-breaking days on both Thanksgiving and Cyber Monday.
All of which is impressive enough, but not enough to allay investor wobbles about the poor performance of the firm over the past year. Cornell acknowledges that things aren’t as simple as just pumping more and more into digital:
This channel shift comes with additional challenges. Today, [the] essential base Target run doesn’t completely translate to the new digital world. Traffic drivers are fundamentally different and guests behave differently too. Put a guest in the store, they are looking for inspiration, they enjoy discovery, they enjoy shopping. But very often a visit to Target.com, it’s far more transactional. One item at a time, logon, check out, as fast as possible friction free.
That means looking again at the offline experience of Target and re-imagining the customer journey:
We know going forward that millennial consumer that we serve, they are going to be digitally-connected and their shopping experiences are likely always going to start with the digital device. Then they will choose whether they want delivery to their front door, they want to pick it up, or they just want to make sure they know where the products are placed inside of that Target store in their neighborhood.
If it’s the last of those options, then what happens when the customer gets to the store itself is of critical importance and here, acknowledges Cornell, Target’s real-estate may not always be an asset:
Today’s millennial shopper doesn’t enjoy shopping one of our tired stores that hasn’t been touched in 10 years.
When [customers] come to a physical store, they expect a great experience. When they shop online, they want it to be really easy. When they come to pick up a product at one of our 1,800 stores, they’ve got to make sure the product is there. We’ve got the right items and we invite them to enjoy the convenience that we did the shopping for them Now they can take the next 20 minutes and explore the store and discover and enjoy the merchandise that we have to offer.
To encourage this offline engagement, a program of works is underway to overhaul the look and feel and function of stores, converting them into digital hubs and online fulfilment centers. Clearly it’s going to take time for this network upgrade to be completed and that’s where Cornell needs to get investors to give him the time to deliver on what is a mid-term vision:
Three years from now, when we’ve reimagined stores and we are in new neighborhoods and we’ve rolled out new brands and we’ve added great new supply chain capability to complement what we’ve done from a digital standpoint, we will be sitting here talking about the new Target, a growth company that’s captured market share in this new era of retailing.
Maybe yes, maybe no, but the theory’s sound enough. The person on the front line of delivering on this vision is Chief Operating Officer John Mulligan who has his own priorities to pursue in part two of this special report.
Image credit - Target