5 Ways Target is Revolutionizing Fulfillment
Target delivered better-than-expected performance in its second quarter 2017, providing the retailer a strong position as it enters the back half of the year.
Target’s digital sales skyrocketed to 32%, on top of 16% growth last year. The compounding of these two growth rates represents more than a 50% growth rate compared with two years ago. The company also said its guest contacts per digital order are running 30% lower than last year. Target attributed the meaningful declines in guest contact center activity to efforts to reduce friction and increase the reliability of digital operations.
"This is a tangible reflection of our work to create a stable digital platform and successful collaboration between our digital operations and merchandising teams to create a more cohesive experience for our guests," said CEO Brian Cornell.
The retailer also saw store traffic increase more than 2%, which was much stronger than Target's expectations. The strength was broad-based across the country, across categories and across channels.
Target also appointed a new Executive Vice President, Chief Strategy and Innovation Officer. Minsok Pak takes the position on September 11th and has previously worked for the LEGO Group, LG Electronics, and McKinsey & Company. Chief innovation and strategy officer Casey Carl left the company earlier this year.
As Target moves to compete with Amazon and Walmart, the company is rapidly testing and rolling out additional fulfillment options. Here are the five ways Target is enhancing and expanding its fulfillment methods:
In August, Target expanded Target Restock, the company's next day delivery option on everyday essentials, to the Dallas-Fort Worth, TX, and Denver, CO, markets. Target plans to expand into another seven markets before the holidays.
"With Restock available in these 10 markets we will already be reaching one quarter of the U.S. market less than six months from the day we launched the test," said COO John Mulligan.
The feature allows shoppers to fill a box with more than 15,000 popular essentials and get it the next day for $4.99 shipping. The expansion comes after an initial test in the Minneapolis area. Target also expanded the assortment, is now making Saturday deliveries, and opened the test to all shoppers versus just Target REDcard holders.
Target also plans to move the cut off for next day delivery later beyond the current 2 p.m. cutoff and said it will begin ramping up communication and marketing efforts in Restock markets.
Target began testing curbside fulfillment with Twin City team members in the second quarter and will expand tests in its third quarter. Curbside fulfillment applies to approximately 180,000 shelf stable items currently eligible for in-store pickup and would allow shoppers to not leave their cars when picking up items.
The new test is being implemented with Target's own team members and internally developed technology, whereas in the past the retailer partnered with third-parties to offer this service. Target said based on early results from the test, they expect to move to a guest facing pilot at select Twin Cities locations later in the fall.
Target is working on expanding in-store pickup capabilities and speeding up shipping times from stores and distribution facilities via third party providers. In-store pickup volume has grown more than 30% through the first half of the year above 2016 and in July Target saw more than 40% growth. Target is investing in system enhancements and store labor hours as more shoppers choose order pickup.
"These investments will be especially important in the fourth quarter holiday season when guests are particularly time pressured and rely on this fulfillment option even more frequently," said Mulligan.
Stores SHIP TO HOME
Target's capability for stores to ship digital orders directly to shoppers was launched two years ago, but the retailer said it is now seeing even more rapid growth in this fulfillment mode. For the first half of the year ship from store sales accounted for more than 40% of digital units shipped.
In the fall Target plans to roll the capability out to an additional 350 stores in advance of the holiday season, bringing the total number of ship from store locations to more than 1,400 locations.
"In addition," said Mulligan, "we are creating additional capacity by ramping up the order volume running through our mature ship from store locations. Because so many of our stores can now ship directly to guests, we have been able to increase delivery speed while still controlling costs and that in turn has allowed us to offer new fulfillment options like Target Restock."
Because Target Restock orders are fulfilled from a nearby store location, the retailer is able to promise orders placed before 2 p.m. will arrive at a guest home on the following weekday.
SAME DAY DELIVERY
Target also acquired Grand Junction, a San Francisco-based transportation technology company. Grand Junction has developed proprietary technology tools and has relationships with more than 700 carriers, allowing retailers to choose the most efficient option for last mile delivery on an individual order.
"While this acquisition is not expected to have a material direct impact on our financial results, we are excited to bring Grand Junction into the Target team and believe their model will help accelerate our progress in delivering speed, efficiency and a high level of service to Target’s last mile fulfillment," said Mulligan.
Target worked with Grand Junction on a test of same day delivery in its Tribeca store, which it launched in the second quarter. In this test, guests who check out can choose to have their purchased items delivered to their home on the same day in a delivery window of their choice.
Target said it found the value of the average basket for these same day delivery orders is more than six times the store average at the Tribeca store and contains nearly four times the units compared with the store's typical basket.
Target said it plans to expand the same day delivery test to several New York City locations in the fall.
"Across all the operations team we are focused on modernizing Target’s network to create a complete seamless efficient and reliable menu of fulfillment options for our guests," said Mulligan.