Target aims for a Happy Holidays with digital fulfilment to the fore

Stuart Lauchlan Profile picture for user slauchlan November 20, 2018
Summary:
Black Friday is just the start of a period of pressure on retail tech and delivery, but Target's management are confident of success.

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With 48 hours to go until Black Friday itself, the countdown to US retail’s biggest weekend of the year is ticking down. It’s also the weekend when tradition dictates that among the stories about which retailers did exceptionally well out of the Turkey-fuelled spending spree, there will equally be headlines about those who did not, whose supply-chain fell to pieces or whose e-commerce operation fell over under the strain.

Target doesn’t plan to be among that latter demographic, with Chief Merchandising Officer Mark Tritton confident that the chain has its omni-channel act in gear to cope with a busy few days operationally, while also satisfying customer expectations:

A key part of feeling good about a deal is also enjoying the experience. That's why we're focused on providing ease as well as excitement for our guests this Black Friday. Once again this year, we are giving our REDcard holders early access to many of our Black Friday deals and target.com guests will be able to shop out Black Friday deals on Thanksgiving morning.

Beyond having items just shipped to their homes, online guests have the option to order items for pick-up and drive up as well. And of course, this Holiday season will be the first one featuring free two-day shipping with no minimum order and personal shopping with Shipt.

Our stores, which open at 5:00 PM on Thanksgiving Day, will position team members in the busiest areas of the stores equipped without Skip-the-Line technology to allow guests to pay for their items anywhere on the sales floor. We've been testing this capability since earlier in the year and we have rolled it out across the chain in time for the holiday season.

Of course, these days Black Friday isn’t just one day.Just as Christmas starts in September, so Black Friday is calendar-defiant. Tritton says:

Black Friday is just the beginning. We'll be offering great deals throughout the season, including our popular weekend deals and Cartwheel Daily deals. But let's not forget Cyber Week. Once again on Cyber Monday, we will offer 15% of the majority of our assortment, will follow that blockbuster offer with great deals a week including daily offers on apparel, home items, personal care, beauty and electronics.

Of particular note this year will be the performance of Target’s toys business, with the collapse of Toys R’Us opening up a potential opportunity for significant growth, one of which Tritton is all-too-aware:

Toys is important all year long, [but] it rises to a whole new level in the Holidays as we typically see half of our annual toy sales in the fourth quarter. This year given the opportunity, we've really upped our game. In 500 stores, we've added more space for toys and in more than 100 locations we’ve completely remodelled that section of the store. Across all of our stores, we've set up new displays and deepened our inventory, adding more than 2,500 new and exclusive toys for the season, doubling the newness we introduced a year-ago.

In addition, we've planned for 25,000 hours of family, friendly events in our stores and we've gone all out with this year's kids gifting catalog at nearly 90 pages, kids of all ages will be able to find at least one must have gift and likely many more. This year to make the process even easier, we've added digital capabilities that simplifies shopping the catalog. Using our Target app, you can simply scan any of the pages in the catalog and instantly add any of the items from the page into your shopping cart or wish list easy.

That should keep the kids amused while waiting for the pumpkin pie to cool down!

Getting to the goods

This year’s Holidays will also put Target’s focus on fulfilment options and improved inventory and supply chain management center stage. experience and higher level of service.

New fulfilment options include initiatives such as Restock, Drive-Up, and Personal Shopping in as little as two hours with Shipt as well as the roll out of new digital capabilities to make shopping faster. Chief Operating Officer John Mulligan is also confident of the shape Target is in here:

On the fulfilment side, the progress we have made this year is truly amazing. At this time a year-ago, we were in the early stages of testing Drive-Up in about 50 stores in the Twin Cities. Today, we offer this service to nearly 1,000 stores and the ability of our team to deliver consistently outstanding service while scaling up at that pace is remarkable.

Drive-Up continues to receive the highest Net Promoter Score of any service we provide. We measure it every month and has been consistently in the mid-80s to low-90s. Early analysis show that a meaningful portion of our Drive-Up orders or either incremental or taking the place of demand that would otherwise have been Shipt to guests homes. Obviously, given the cost of last mile shipping, we like the economics of Drive-Up much better and our guests are clearly happy as well.

Then there’s Shipt, a same day delivery service built on digital tech from the company of the same name acquired by Target last year for $550 million. Customers pay $99 annually for an unlimited number of deliveries with orders of $35 or more free as part of that subscription. This is proving to have been a sound investment, says Mulligan:

Shipt has rolled out even more rapidly than Drive-Up. After all, we purchased the company less than a year-ago and today it is operating in more than 250 markets, making an accessible to nearly two-thirds of the US population. As of today, Shipt shoppers are fulfilling guests’ orders for more than 1,400 Target stores, and a meaningful number of those orders are delivered in less than two hours.

This all builds on early investment in ship-from-store capabilities, he adds:

Our ship-from-store volume more than doubled [year-on-year], while other shipment modes were nearly flat. As we have said many times, the ability to ship from a nearby store is a win-win. Compared with shipping from farther away, shipping from store provides speed for our guests, while dramatically reducing the average cost per shipment.

But while Drive-Up, Shipt, and ship-from-store are our newest capabilities, it's important to remember that we offer our guests several additional options. In-store pickup continues to grow rapidly and it reliably accounts for about 15% of our digital volume. We're also seeing strong growth in Restock, our next-day delivery service of household essentials.

It’s all pretty impressive progress, but there’s still work to be done says CEO Brian Cornell:

We're in the very early stages of the transformation of our supply chain or replenishment systems, very early stages of testing automation and improving overall processes. Those will take place over time…So we're in the very, very early stages, both from a supply chain standpoint, the transformation of store replenishment, but also in building awareness of the full suite of fulfilment options that we now have at Target. So those are going to take place over the next few years. We've been very consistent in saying we're in the very early stages. But those benefits are in front of us, and we expect to see those impact our business in a profitable way over the next two to three years.

Successful execution of the Holidays boom without incident will help to raise the profile of such new fulfilment channels, he adds:

We're still building awareness. We literally just started our advertising campaign to talk to our guests, to talk to the consumer, about this new suite of fulfilment options…it’s still very, very early. We expect to build awareness during the holiday season and throughout 2019.

My take

Target has put a lot of work in to its omni-channel transformation. On the digital side of things, it’s currently turning in annual growth of 49%, while the enhancements and tech upgrades in-store are improving the customer experience and satisfaction scores. The canny emphasis on providing more and more fulfilment options gives the firm a fighting chance to hold its own against Amazon’s expertise here. If all goes to plan, this should be a Happy omni-channel Holidays for the retailer.

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