How Target's omni-channel leap of faith 5 years ago set it up for retail's COVID crisis and beyond


How Target’s omni-channel leap of faith 5 years ago set it up for retail’s COVID crisis and beyond
Stuart Lauchlan
Wed, 03/03/2021 – 03:12

Summary:
In 2016, US retailer Target set off on an omni-channel transformation journey that ‘loved the store’; in 2020, that foresight paid off during the COVID crisis. Where to now in the Vaccine Economy?

Target

This time last year Target CEO Brian Cornell was able to boast that the retailer’s revenue had grown by $5.4 billion since 2017; twelve months on and he’s able to add nearly three times that amount – another $15 billion – to the running total since the firm kicked off its bold omni-channel leap of faith back in 2016. 

It goes without saying that Target has ‘had a good war’ when it comes to riding out the COVID crisis. That’s true of basically every essential retailer, of course, but while most have seen their digital transformation forcibly accelerated by the pandemic’s demands, Target has reaped the benefits of having the foresight to invest in omni-channel long before the events of the past 12 months made it a ‘survival 101’ for retail. 

Having added 12 million new omni-channel customers this year, it was pardonable that Cornell took a moment yesterday during the firm’s latest analyst update to give himself and Target as a whole a pat on the back: 

In 2016, our digital transformation was only beginning. We weren’t even a Top 10 e-commerce provider, and we were just getting our same day services off the ground. Today we have the most complete suite of same-day fulfillment services in the industry. We’re one of the leading e-commerce players, and for click-and-collect same-day services, we continue to deliver industry leading growth and dollar volume as well as Net Promoter Scores over 80%, despite record demand.

Even before the dramatic challenges of last year took hold, our team had been busy building the retail platform of tomorrow, but 2020 accelerated everything and, as such, our guests are already benefiting from and loving that platform today. At the heart of the platform was a belief that consumers would continue to flock to our stores for multi-category one-stop shopping, a friendly, well-trained and knowledgeable team, and joyful experiences. 

Core to the Target omni-gambit was the re-definition of the role of its store network. At a time when other brands were paralysed by Amazon-ian fear and envy and rushing to offload their offline assets in a race to morph into an online avatar of retail’s ‘Great Satan’, Target took a pragmatic – and as it turns out, highly prescient – alternative approach, recalled Cornell:

We placed the physical store more firmly at the center of our omni-channel platform and we created a durable, sustainable and scalable business model that put Target on a road of our own. Our goal was to use our proximity – nearly 1,900 stores within 10 miles of the vast majority of the US consumers – to offer the fastest and easiest digital fulfillment in retail. The capabilities we’ve built to become ‘America’s easiest place to shop’ also cracked the essential question of how to grow our digital sales exponentially, while maintaining the overall profitability of our business.

Our team’s ability to act and react in 2020 was years in the making. Without our multi-year road map to develop new capabilities and bring them to scale, 2020 could have exposed essential gaps in our business model. Instead, it proved beyond a doubt the durability of our model and it signaled our potential for continued growth in years ahead.

On target today and tomorrow?

On the face of it, that was indeed a strategy that paid-off in spades. Over the past year, Target stores fulfilled more than 95% of total sales, roughly equivalent to $47 million per store. Drive-up fulfillment has shot up more than 600% during the COVID period, while pick-up, a much more mature offering, still managed 70% year-on-year growth. Meanwhile Shipt, the Target-owned delivery business, saw its revenues more than triple. And all this has a beneficial impact on customer spend, which is typically around 30% higher than popping into the store. 

Of course, all of this has cost Target a great deal in terms of supply chain, store operations and technology upgrades – and that’s a bill that’s still open. The retailer has now budgeted for ongoing annual spend of $4 billion to continue to expand its omni-channel capabilities, up from $2.5 billion in 2020. 

For a start, it’s time to increase the number of distribution centers (DC) to help support store replenishment, according to Chief Operating Officer John Mulligan, announcing two new DCs in 2021 and one on each US coast to follow in 2022. 

There will also be an increased focus on automation and robotics at the back end to sort inventory to the precise amount of store needs and organize it by store aisle, thus speeding up replenishment in stores. Mulligan explained:

Team members grab a tote, walk to the aisle, and stock the shelf. No sorting in the back room or finding places to stash cases of excess product. 

There are manifestations of this kind of robo-tech in action at present. Auto Rebin, currently used in three warehouse facilities, sorts individual items and is geared towards slower moving inventory, when stores only need a handful of items to put back on the shelf; the second exemplar is a robotic ship sorter which handles everything from boxes of individual items to entire cases of products. The robots then sequence inventory so pallets get loaded for distribution in an order that saves stores time on receipt.

Each already delivers benefits individually, but in 2021 both robotic systems will be used at the same time in one warehouse, with a view to seeing how they perform in tandem before being rolled out on a wider scale, said Mulligan:

Opening new warehouses and expanding our robotics capabilities are both about moving product more easily to stores, but just as important is being ready to send what stores need before they even know it. This year, we’ll continue expanding the roll out of our predictive inventory positioning capability across our assortment. This helps us more precisely order and position product close to where we anticipate guests will want it, so we can react quickly when there is demand. In turn, it improves out-of-stocks and lowers backroom inventory levels. In 2020 when sales spiked, this capability allowed us to order and re-stock products 25% faster than using our old systems. This year, we’ll use it to order and position even more items in our assortment, so we can replenish the majority of the store faster for our guests.

With stores assured of inventory, there will also be a continued focus on enhancing fulfillment options for customers, he added:

For example, drive-up guests will be able to share more preferences in the app, like telling the team where to place the order in their vehicle or assigning an alternate pick-up person so it’s easier for a spouse or family member to pick it up. We’re numbering our drive-up spaces so our teams can find guests sooner, for those times when a guest pulls up in a black SUV next to eight other black SUVs. And we’re updating the team member app so they can more easily see what orders are in progress and where they can help.

Mulligan has been a driving force in Target’s omni-transformation and like Cornell, he’d earned his ‘moment in the sun’ to look back at what’s been achieved to date: 

Our same-day services have grown faster than any other fulfillment method, but when we do ship online orders, we’ll continue sending the majority of those packages out the back of our stores. Since 2016, we’ve scaled our ship-from-store capability from a low tech test in a few hundred stores to a sophisticated fulfillment operation in most Target backrooms.

All of this might easily not have happened, he mused, if the 2016 ‘leap of faith’ hadn’t been taken: 

At that time, conventional wisdom held that the only way forward was for retailers to build capacity to send more packages to homes. Instead, we went our own way, built a fulfillment model with our guest’s local store at the center and took the initiative on same day. We could just as easily have constructed additional fulfillment centers and driven the shift to digital sales with more ship-to-home capacity. But the economics were terrible and we wouldn’t have been differentiated. In short, we didn’t see the textbook solution as scalable or as likely to do what we’ve done, namely set the groundwork for years of guest satisfaction and brand loyalty.

My take

Both Cornell and Mulligan have earned their celebration of what’s been delivered since 2016, particularly at the end of year when the retail sector has been put under near-intolerable pressures and firms like Target were placed on the COVID frontline as essential suppliers. With the arrival of vaccines and the emergence of a Vaccine Economy, 2021 will hold its own challenges. As Cornell says: 

I think we all recognize this is a very uncertain environment. We’re still speculating around what’s going to happen with the economy, how employment rates start to recover. While the trends are encouraging right now with the virus, we’re all battling COVID each and every day, and while vaccine distribution is accelerating, millions and millions of Americans are still waiting for their turn to get that vaccine. 

But Target’s omni-choices have positioned it well to adapt to whatever happens, he argues: 

Five years ago, we envisioned a future for ourselves in which the key to guest preference and breakout growth lay in an unappreciated omni-channel asset called ‘the store’. Many were skeptical, which is why we said from the beginning that we were playing our own game in creating a category of one. Many thought the inevitable drift was for our store guests to become digital guests and that the current only ran in one direction. We saw something different. We saw a future in which even the most committed digital-only guests would find the best and easiest shopping experience at Target because of how we connect that experience to our stores.

The primary focus will remain on the customer experience, he concludes: 

Our most valuable guest is the guest that utilizes all of our assets, shops in our stores, leverages order pick-up, uses drive-up when it’s convenient for them, and also more and more leverages the benefit of a personal shopper through Shipt…Having all those assets available for our guests is critically important and we think those are going to be very sticky over time. Those guests who utilized drive-up and Shipt during the pandemic, we think there’s going to be a lasting connection to those fulfillment options as we go forward in 2021 and beyond.

Image credit – Target

Tags


Source link

Leave a Reply

Your email address will not be published.

top