Thinking about who’s on top of their game right now? It’s Target. There are so many lessons to be learned from its current success – a success that’s been a while in the making.
What’s working for Target? Small-format stores and more of them, using stores as fulfilment centers for online orders, wisely deploying local sort centers and regional distribution facilities, investing in house brands, viewing supply chain as an opportunity for revenue and innovation rather than a necessary hindrance, and being willing not only to experiment, but to give that experiment breathing room to flourish.
Stores: The Backbone of the Strategy
Stores are central to Target’s omnichannel strategy. In 2020, Target’s own stores fulfilled 95% of its sales – either pickup, curbside, or ship-from-store. Unlike giant warehouses, shipping from stores engages associates, provides more visibility into inventory, and results in additional revenue from buy online pickup in store (BOPIS) browsing. Downstream from its stores, Target employs a sort center model – taking orders from four to five different stores in a city and centralizing them so that local delivery partners can pick them up for same-day service (this happens multiple times a day). These sort centers are powered by Shipt, Grand Junction, and Deliv technology acquisitions – each at a different place in that value chain. Further upstream, there are also regional distribution centers (RDC) to help accurately and efficiently replenish stores.
Item picking in stores is another interesting part of Target’s omnichannel strategy. For instance, INF – or "Item not Found” – happens when an associate goes to a shelf to complete a "fulfill from store" order and the item isn't there. Target tracks this metric regularly and works to reduce the occurrence of these incidents.Rather than building tons of new mega-stores, Target is focusing on adding 30 to 40 new small-format stores over the next several years – a strategy the company has been consistently executing (successfully) since 2016. The smaller store formats create a Target brand experience for the customer, which an automated facility certainly doesn’t, and also allows inventory to be deployed closer. Speaking of stores, Target is investing billions of dollars in the coming years in remodeling and upfitting its stores. In fact, the company plans more than 120 store remodels this year alone – primarily related to drive-up and same-day services, which are Target’s most popular and fastest-growing offerings.
Implementing New Ideas
It is obvious that Target store managers are listening every day to their employees, sorting the best ideas, and passing those up the chain to get approved and implemented. Here are a few examples I noticed while listening to earnings calls:
● Hidden temperature control lockers/areas in front of stores for associates to hold orders for guests and delivery partners to come in
● Reduced traffic and congestion in front of stores near staging areas
● More space for order staging at the front of stores
● Protection for workers from weather/elements and even (I suspect at times) crime when fulfilling drive-up orders
You can always identify a well-run business when it understands the entire value chain and works on each part to make it faster and more efficient. This results in reduced cost, happier employees, and improved customer experience. Wins for all involved.
At the beginning of Target’s 2013 supply chain journey, the company set goalposts for its experiments and, more importantly, remained nimble in defining success. Target set out saying, "If this is going to work, our supply chain margins need to resemble a customer picking up something in the store," and then set about making it happen, evaluating and redefining success along the way.
What else is Target nailing? Assigning multichannel credit. The company’s CEO laid out a strategy in 2013 saying, “There are no penalties, or there is no internal conflict at all as it relates to who is going to get that credit for the sale. We are double crediting everybody from an internal standpoint, and then we take it out at the enterprise level to make sure that it all washes through on a consolidated basis." This means that the stores get the same "credit" for sales (in terms of achievement) as online if the stores are at any point included in the online value chain – and vice versa. Then, of course, when Target reports to Wall Street, it removes the double-counting. This rewards all parties rather than creating counter-productive internal competition. An added bonus is that customers then see one unified brand across all channels and have a consistent brand and customer service experience.
Finally, Target is also investing in house brands – 10 of which have a market upwards of $1 billion, and which represent one-third of sales (and an even bigger percentage of the profit!). This is where Target excels at differentiation and building customer loyalty. It’s also where Target edges out online-only competitors; the thrill of the “treasure hunt” and the likelihood that a BOPIS order ends up with a little something extra in the cart when the shopper takes a quick lap through the store.
What’s Next for Target? If Target is going to acquire technology, the smartest place to invest resources would be to help scale sortation centers. The company is still investing slowly and patiently, but actively looking for technology to scale these operations. Between the store-as-fulfillment center, sortation centers, and RDCs, the share that is delivered to home can be convenient for consumers and more profitable for Target.The bottom line here is this — Target is hitting its stride across the board. People, process, and technology are all working together in concert. This is rare to see in business, and more people should be taking notice of what’s happening here. If I were a retailer looking at something to learn from Target, the execution model is where I would start. Staying patient and focused is the missing ingredient at most companies.
Rick Watson is CEO & Founder, RMW Commerce Consulting. He can be reached at rick@rmwcommerce.com.
