How Target is building a digital future
From acquisitions to brand introductions, the retailer is building an online strategy that hinges on stores and is finally paying off in higher sales.
PALM DESERT, CA – "We're building a new Target run for a digital world," Bruce Starnes, Target vice president of digital solutions, said during a Wednesday morning session at the eTail West conference.
Target's digital strategy has been a while in the making and as of the end of 2017, has finally begun bearing fruit. In the third quarter of 2017, the retailer's most recently released financials, digital sales grew 24% from the same quarter last year. Holiday sales increased as well, and management anticipates full year results for the digital channel are expected to be 25% higher than the prior year.
The story of how Target has grown digital is rooted in its stores, according to Starnes. In particular, to a series of investments — $7 billion in all — made to leverage a brick-and-mortar presence to support the digital channel. "The digital strategy is there to support the Target strategy," Starnes said. "There are three things we're trying to do on the digital side."
First, is to bring the retailer's assortment to life, particularly its brands — both national and private label. Store brands have always been critical to Target's differentiation strategy — and the company embarked on a review and overhaul of its existing stable of brands in 2017, when it announced plans to launch 12 new brands in key product categories. This pledge was made in mid-2017 and it has already been exceeded, Starnes said, adding, "And we're seeing great results."
In particular, Starnes called out the recently launched Hearth and Hand from HGTVs Chip and Joanna Gaines as one such success.
The second piece of the plan is to emphasize ease and convenience. To reinforce this, Target is building out services such as curbside pickup and home delivery. Its acquisition of Shipt in December for $550 million is a prime example, Starnes said.
"Our stores fulfilled more than 70% of Target's digital volume in November and December through Order Pickup and by shipping items directly to guests — that means stores enabled approximately 80% of our sales growth in that period," CEO Brian Cornell said in a company blog post in January.
And finally, Target is thinking of how to better use stores to facilitate digital sales and fulfillment. "We think about our stores as a hub," Starnes said. "Three quarters of the U.S. population live within 10 miles of a Target store."
Hanging the success of digital on product launches and brick-and-mortar investment may seem counterintuitive, but Target is building its online business to extend the brand promise. The goal, Starnes said, is "to bring joy to our guests lives." Consider curbside pickup for online orders: Think about a mom in Minneapolis, in winter, with kids in the car, not having to go into the store. "That's a lot of joy man, if you don't have to go in," he said.
It's taken several years for Target to reach this place. "Seven years ago when I started, we had just started the process of building own platform," he said. "To be honest, we weren't that great at digital. We spent a couple years trying to figure things out."
Taking risks and making mistakes is part of the process, Starnes emphasized. It's not a process built into many large, established brands, but it is necessary in today's digital market. "We've adopted a lot of technology's best practices," he said. "Today our teams have freedom to work on innovation and experience."
The work continues, Starnes said, adding, "We think this is the right play and we're really energized by the next couple of years."
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