Target is fighting Amazon’s market share with distribution – not drones
The chief executive of Target has attributed the retailer’s upwards financial performance on its capacity to internally rebrand its stores as distribution centres, rather than tackling threats from low-margin e-commerce rivals with futuristic tech.
Target has been pushing its in-store collection service
Target’s recent holiday financials revealed a like-for-like sales increase of 5.7%. Digital sales rose 29% during the season, while the amount of online orders fulfilled through in-store or curbside pickup services was up 60% year-on-year.
The figures contrasted heavily with those of Macy’s, which recently issued a profit warning to investors following a lacklustre Christmas period. JCPenney and Kohl’s also experienced weak growth across holiday season; Sears was saved from shutdown at the final hour last week.
Brian Cornell, chief executive of Target, believes his store could easily have become part of this downward trend had it not reinvented itself to fight with Amazon with its own arsenal.
“A few years ago,” he said, “there were questions about Target's place in retail."
The company was operating its ecommerce and stores as two separate divisions that comprised different buyers and even different inventories. All the while the threat of Amazon loomed closer.
“But when we stepped back and thought about it, it was clear we already had a coast-to-coast network – [we had] more than 1,800 potential distribution centres,” said Cornell at the National Retail Federation's Big Show.
“Until that moment, we'd only thought about them as stores. Today, we consider our stores as our single most competitive advantage.”
By reimagining Target’s physical stores and making them “work even harder” as “fulfilment hubs”, the company now sees three out of four orders fulfilled by a store – as order points, as instore or curbside pick-up points, or as traditional showrooms for browsing and purchase.
It has also been trialing ‘small format stores’ near college campuses across the US, researching which items could best serve the specific communities of each in order to “customize” shelf stock. Like their larger counterparts, the smaller shops also encourage consumers to buy online and collect in-store.
Cornell said he has now invested “billions” in his stores – via staff wages and training, as well as infrastructure like the recently-announced implementation of Apple Pay and Google Pay across the network.
“At Target, we're spending a lot of time exploring everything from AI to VR,” he said. “But we're also realizing there's still no substitute for that human connection.
“Would you rather have a drone dropping off a box on your doorstep or – if you're a mom – a real person, who skips the doorbell and knows they need to knock very softly not to wake up that baby?”
It’s a different story to China’s JD.com. Speaking at the same conference, Harlan Bratcher, local business development head for JD Fashion, noted the use of drones has served the brand well in its home country, where it runs 100 licensed drone bases.
He said the brand uses technology – and not necessarily the human touch – to fulfil “the notion of giving the customer what they want, when and where they want it”.
And with Amazon unveiling its fully electric, autonomous delivery device – Scout – today, Target may now have to more vehemently argue the case for emotional humans over efficient robots on its home soil.