In late 2011, Target quietly launched a retooled and internally-built website. The relaunch was symbolic in the sense that it showed Target’s commitment to a new age of digitization. It also symbolized the rising influence of a new competitive threat: Amazon. Ironically, for the past 10 years, Target had outsourced nearly all its online operations to Amazon, including the hosting of its website. Now its partner had become one of its most menacing rivals.1
Target got the message, but perhaps too late, finally hiring a Chief Digital Officer in 2013.2 Online sales followed, but only to a degree. In 2015, Target’s digital sales still only constituted roughly 3% of the $74 billion total, a far cry from Amazon but in line with Wal-Mart’s 2015 digital make up of 2.5%. 3,4
Digital is here. Now what?
The nudge into the digital space forced Target to rethink how to interact with its customers. In May 2013, Target launched the smartphone app Cartwheel, which aimed to marry the function of couponing with a social network. The app allowed a customer to scroll through a variety of temporary coupons, place the coupons into one of several “slots” that limited the number of coupons that could be used in a trip, and then scan the coupons at checkout. The app linked with Facebook to provide a way to share your savings, creating a network effect. By many measures, the app seems to be a success. As of May 2015, the app had been downloaded more than 14 million times and generated more than $1 billion in promotional sales for Target.5 While the numbers seem impressive, a skeptic would ask if the sales generated were incremental or simply discounts on products people were already going to buy. Economics aside, the app has allowed Target to gather massive amounts of guest data. The Cartwheel data have allowed Target to better understand buying patterns of guests, allowing promotional activity to be better targeted (pun intended). For example, a coupon can be sent to a customer who has not visited the store recently to nudge him or her back in. Based on the length of the lapse, the coupon amount and product can both be adjusted to provide just the right discount to encourage a trip to the store.
Digitilization has also begun to transform the way Target manages its inventory. In May 2015, Keri Jones, Target’s head of supply chain announced that Target will pilot Radio Frequency Identification (RFID) technology.6 The technology will allow a small RFID device or tag to be placed on an item of inventory (likely clothing). The tag simply consists of a microchip with an antenna that emits a signal to a receiver.7 The technology should allow for better inventory management along the supply chain, giving Target visibility to where inventory sits along the chain, a tricky task in the past. Better inventory management should then lead to lower shortage rates and more ease in locating a product within a store, resulting in lower operating costs and a better customer experience.
Are we there yet? No.
While noble, these steps towards digitization are not enough. To compete with established juggernauts like Amazon and up-and-coming challengers like Wayfair and Jet.com, more needs to be done to ensure that Target remains relevant. To start, Target should accelerate the roll out of RFID to the entire chain and enable their use within other nodes of the supply chain. The decreasing costs of tags will make the economics more and more attractive. Second, Target’s digital strategy team needs to look itself in the mirror and decide what it is. Does it want to compete with Amazon on selection and delivery or Wal-Mart on price or does it want to do something completely different. Whichever way it goes, it needs to decide fast. Because if you don’t define your strategy, someone else will for you.
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1 “Why Target lost its aim,” The Economist http://www.economist.com/news/business/21645218-discount-store-chain-which-forgot-its-formula-success-why-target-lost-its-aim , accessed November 2016.
2 “Targets Chief Digital Officer Leaves Target,” Star Tribune http://www.startribune.com/jason-goldberger-target-s-chief-digital-officer-leaves-target/394626801/ , accessed November 2016.
3 “Target Reports Fourth Quarter and Full Year 2015 Earnings,” Target Corporate website http://www.startribune.com/jason-goldberger-target-s-chief-digital-officer-leaves-target/394626801/ , accessed November 2016.
4 “Wal-Mart 2015 Earnings Release” Wal-Mart Corporate website http://corporate.walmart.com/_news_/news-archive/investors/2015/02/19/walmart-announces-q4-underlying-eps-of-161-and-additional-strategic-investments-in-people-e-commerce-walmart-us-comp-sales-increased-15-percent , accessed November 2016.
5 ”RFID: New Tag Technology Will Elevate Target’s Guest Experience,” Target Corporate website https://corporate.target.com/article/2015/05/keri-jones-perspectives-RFID , accessed November 2016.
7 ”Frequently Asked Questions” RFID Journal http://www.rfidjournal.com/site/faqs#Anchor-What-363 , accessed November 2016.