Hitting the omni-channel retail Target - the COO perspective

Profile picture for user slauchlan By Stuart Lauchlan March 5, 2017
Summary:
Getting the offline/online balance right is a trick that Target COO John Mulligan needs to pull off. Keeping the digital platform up-and-running is another.

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Over the past three years US retail giant Target has more than doubled our digital sales from $1.4 billion in 2013 to more than $3.4 billion in 2016. CEO Brian Cornell describes digital as “an entirely new engine under the hood”, but it’s an engine that needs a lot of work to keep it running smoothly.

That’s the task facing Chief Operating Officer John Mulligan, who is keen to point less to the size of the digital sales being clocked up and more to the fact that the Target digital platforms are holding up in order to process those sales. That wasn’t always the case, he notes:

Make no mistake, we’re proud of that performance, but what’s just as important is that, behind the scenes, our platform functioned flawlessly. Record online sales, record traffic, and more than enough capacity in the system to keep things humming right along.

A year ago, it was a different story. Back in 2015, we introduced a general incentive offer for Cyber Monday, 15% off everything on our site, and our guests went crazy, which was great, right up until [when] it wasn’t. Demand was so high that, quite candidly, we had to throttle traffic to keep our site from crashing, frustrating guests and leaving millions of dollars on the table, not good.

Lessons were learned from this though, he insists, specifically that if Target could put together a compelling offer, straightforward, easy to understand with really clear value then customers will respond. But in order to do this, the firm has to significantly increase the capacity to support demand.

The result was investment in a more adaptive platform that would provide much more capacity, flexibility and stability and provide support for a longer-term vision. Mulligan explains:

We invested in going well beyond what would simply help us manage through the next year. We built for the long haul, allowing us to imagine our business far down the road. This is what we mean when we say we are investing to compete and grow. It’s what we’re doing across our business. We’re sharpening our operational performance, so we can execute on our plans quickly, while at the same time we’re making investments that set us up to compete in an increasingly fierce environment. We see enormous potential out in front of us and we’re seizing every opportunity to capture it.

The stores as assets

Like his boss Cornell, Mulligan is eager to position the firm’s offline stores as an asset:

They are at the center of everything we do for our guests, regardless of how we deliver. The 40% digital growth we saw in December, they enabled it. In the two days that followed our record-setting cyber Monday, our stores shipped more than one million orders to fulfil that demand. The week before Christmas, our stores fulfilled nearly 70% of our target.com orders. And on Christmas Eve, they fulfilled more than 80%, shipping about half of those to our guests and packing the other half for in-store pickup.

What Mulligan wants to do is think about the changing nature of the function of a store in an omni-channel retail economy:

When we look at them as buildings stocked with product, they are also local fulfillment centers. Now when you take the products our guests are already love and add in our store network, we have the unique potential to be incredibly competitive against both digital and traditional retailers, because for digital sales to work, you have to be able to deliver quickly and with as little cost as possible. That’s why getting near the consumer has become the Holy Grail in retail.

Online-only competitors are investing rapidly to stand up warehouses that are storefronts that cut the distance between their products and the consumer. But we’re already there, in fact, we’re practically neighbors. Eighty-five percent of our demand and three quarters of all Americans are about 10 miles or less from our 1,800 stores. So if we’re talking about proximity, we already have it, no question.

Building on that geographic closeness however is the need to ensure that the customer experience is enhanced once the consumer makes the journey to the store. There are examples of this in practice, says Mulligan, such as order pick-up:

Guests chose to have nearly 50% more items picked-up in store this year than last. They love that we’ll have it ready for them within an hour or two. We’re making it easier and faster, by separating the pick-up and return areas. We’re moving toward a future, where we will use technology to alert the team when guests arrive.

There are also ongoing efforts to blend the digital world into the physical shopping experience, including evolving the firm’s Cartwheel digital savings app:

Today, guests use Cartwheel nearly 5 million times every week. They use it to plan their trips and shop the stores. Later this year, we will combine Cartwheel and our Target app to make shopping at Target even more easier and convenient. Guests will be able to make their lists, find items in stores, take advantage of great offers, and pay for their orders, all within a single app. And in our refreshed stores, we’ll test technology that gives the guest the ability to opt-in and see what products around them are on sale with Cartwheel.

The other big challenge, of course, is ensuring that goods are in-stock in the store when customers who have browsed online come in to buy them. This is a changing world as well, says Mulligan:

For the last 50 years, our supply chain has moved big case packs of product and we’ve done it slowly. In the future, we know we’ll still have to move cases. But to replenish our stores faster and manage the growing digital demand, we have to start moving individual items too. The concept is really pretty simple. When a store sells one bottle of a certain shampoo, we put one of those bottles on the next store truck within hours. It’s replenishing to actual guest demand and doing it fast.

Now to someone not familiar with supply chains that might not seem like a big deal. But here’s why it is. When we move with that much speed and precision, all the product that comes into a store can go straight to the sales floor. Nothing sticks around in the back room. Out-of-stock goes down, safety stock goes down and our speed goes up, way up, plus it’s exactly how we need to move product to fulfill an increasing number of individual target.com orders.

Above all, we get faster and more reliable and the guest wins. Then we can dedicate that back room space to more productive activities, like storing online only product for order pick, or shipping digital orders. And there’s no extra product at one store when it could be used at another.

Mulligan’s concluding message is a salutary one to anyone in the retail sector - thinking omni-channel means thinking about everything, not just about bumping up digital spend or drilling down on stores:

Nothing we’re doing is specific to a channel, stores or digital. Everything we’re building is a combination of the best of each channel, working together to provide a wholly seamless experience for our guests. We’re transforming stores to help support our digital growth. We’re building our supply chain to better – to enable better experience in-store and online, and we’re thinking about our assortment from every angle, so guests are inspired no matter how they shop.

My take

Target is talking the right talk. The question is whether it will be given the chance to deliver on its vision by (a) short-term thinking on Wall Street and (b) a ruthlessly competitive retail environment with a fickle customer base. It’s far from clear at this point whether that’s going to be the case.