Target looks to digital investment to survive Black Friday retail systems stress

Profile picture for user slauchlan By Stuart Lauchlan November 17, 2016
Summary:
Black Friday and Cyber Monday offer a boom in retail business, but also add pressure to online and offline fulfilment systems. Target is convinced its digital investment is going to enable it to avoid problems during this busy period.
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Black Friday shoppers at Target

With Black Friday and Cyber Monday around the corner, one of the inevitable headlines that will emerge is when a retailer’s website crashes under the strain over Turkey-fuelled shoppers or when it runs out of stock to meet demand.

At Target, Chief Operating Officer John Mulligan is determined that won’t be happening to his firm, citing investment in digital and advanced inventory systems to ensure that the firm doesn’t get caught out as it has been in the past. He says:

The accuracy of our inventory data is key to our speed and reliability, and we've been investing in our systems and processes to achieve greater accuracy. One example is our implementation of our RFID Technology and a portion of our apparel assortment, which is currently in more than 1,600 of our stores. In affected categories, overall inventory accuracy has increased dramatically, meaningfully reducing the number of occasions in which we can't physically locate an item.

In addition, we've made system changes to optimize replenishment of products that our guests purchase in multiples and made changes to minimum on hand standards and higher volume locations, both of which have dramatically reduced our stocks on effective items.

Target has redesigned its in-store replenishment processes and algorithms, he explains. This has reduced costs dramatically, savings which have been pumped back into enhanced services:

Two areas in which we've invested store labor for the store pickup process and our ship from storage capability. Guests love the flexibility of these capabilities all year especially, but especially during the holiday season. In fact, during the peak period from Thanksgiving through Cyber Monday, we expect our stores to fulfil more than half of our digital demand.

That’s in large part due to the increased take-up of click-and-collect options which will this year be at their highest levels, he adds:

While this is the third holiday season in which we've offered order pick up in all of our stores, we're planning for volume to grow another 50% from a year ago. Since last year, we've added additional holding capacity to more than 80 of our highest volume pickup locations and we've invested in scheduling tools and additional digital devices to enable high volume locations to deliver fast service, even in peak times.

Our last year's holiday season, about 460 of our stores were shipping directly to our guests, not more than threefold from about 140 stores in 2014. This year we've extended this capability to another 600 stores, meaning that well over a thousand of our stores are shipping directly to our guest this season.

In total, these stores are expected to ship more than three times as many units as last year accounting for about a third of  digital volume during the peak period from Thanksgiving through Cyber Monday.

Out-of-stock low

What’s most important going into this period is that out-of-stock numbers are at an historically low level for Target, although Mulligan is not content to sit on his laurels on this point:

There continues to be significant opportunity for us. We see opportunity first at a store level, ensuring we always have what the guest wants when they walk in, because even though we've improved meaningfully there's still a lot of distance there to go.

Then more important than that, digitally ensuring we have the right unit at the right place for the guests, whether they want to come in-store and pick it up, whether we're going to shift that from a store or ship that from a fulfilment center.

Today, we're not completely optimized there either and so while we've seen great progress and there's absolutely benefit to the guest and their trust with us when they come into the store, we still think there's a lot of runway there for us to improve.

That said, he admits:

We're very pleased with the reaction we're seeing during key event periods, [such as] back-to-college, back-to-school, a very important period for us both in-store and online. We think the combination of the investments we've made to improve ease of functionality of our digital engagement and the fact that we're certainly showing the ability to win during key holiday period, that's the right balance for us going forward.

Digital is going to be an important part of our growth strategy going forward. We think digital is certainly the way our guests interfaces with the brand whether they're in-store or online, and we're very pleased with the progress we're making. Our overall growth rate is approximately 2x the digital industry, so we're building market share.

Indeed for the third quarter of the current fiscal year, digital sales grew by more than 26% year-on-year with the bulk of that digital business is coming from high ticket areas, such as apparel and home.

With the post-Thanksgiving boom about to happen, Target has been putting its systems to the test to make sure that they can cope with anticipated surge. CEO Brian Cornell explains that a promotional exercise to put pressure on and stress test capacity and capabilities:

This promotion was an unprecedented and compelling offer for our guests - 10% off on our entire assortment in both stores and digital channels. As you'd expect, the offer drove strong traffic and sales in all channels, but our digital comp on the day was particularly high. In the face of very strong surge in traffic, I'm happy to report that our system performed very well, providing us valuable insight as we prepare for even bigger days this holiday season.

But while the investment in digital appears to be paying off, Cornell remains conscious that there’s an ongoing need for as much attention to be paid to the offline experience:

We've learned guests still like physical stores and, year-to-date, still almost 90% of all retail shopping is taking place in a physical store. So we want to make sure we've got a great experience, we've got great service, we continue to elevate that experience in service and combine it with outstanding merchandise and value every time our guests shop.

My take

Some confident assertions of a successful holiday season boom there. The proof of the pudding is in the eating, of course. Target’s drawn a line in the digital sand. Let's see what happened in a couple of weeks once we've digested the turkey and the pumpkin pie.