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Target’s e-commerce order fulfillment from stores helps shape strategy

March 16, 2016 12:54 PM
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Target Corp.’s 460 stores with fulfillment capabilities handled 30% of the retailer’s total e-commerce sales last year and 50% of online electronics orders in Q4, CEO Brian Cornell says.

Those stores, about 25% of the retailer’s 1,800 nationwide, ship online orders to customers’ homes or businesses nationwide within two days, he said in remarks during and after a speech Tuesday to The Executives’ Club of Chicago. That capability lets Target, No. 16 in the Internet Retailer 2015 Top 500 Guide, compete with Wal-Mart Stores Inc. (No. 3), Amazon.com (No. 1) and others without building new e-commerce distribution centers, he says.

“I have 1,800 mini warehouses across the country,” Cornell said.  460 feature backrooms converted into online order fulfillment centers. Employees who are cross-trained to work the sales floor and the backrooms pick online orders from stores’ shelves or inventory and pack them at the store. UPS picks up the orders and delivers them to hub-and-spoke distribution centers.

Target will expand the number of stores with fulfillment capability, Cornell says, but he declines to specify how many stores or their locations.

When online shoppers come to a store to pick up an order, they often shop in the aisles, he says. Target does not disclose how much those shoppers spend in the store.

“Our guests love this flexibility, but it adds complexity to the business,” Cornell says. To deal with customers’ expectations, the retailer must ensure products are in stock and operate fast, reliable digital platforms with never-fail online checkout, he says.

All of Target’s stores have offered in-store order pickup since 2013. Target has said that consumers who order online and request in-store pickup account for 15% of Target.com’s order volume year-round. Those orders trigger alerts to affected stores, where workers pull the items.

The shifts in Target’s online versus in-store retail trends are as profound as those in the taxi, photo-sharing and hotel businesses where Uber, Snapchat and AirBnB have outgrown their traditional rivals, Cornell says. For example, more customers shopped online at Target.com on Black Friday 2015 than did so in stores for the first time in the retailer’s history. Also, Target’s online orders during the seven days that started with Black Friday (Nov. 27, the day after Thanksgiving) exceeded all online orders during the entire fourth quarter of fiscal 2013, he said.

Target is also opening smaller, urban stores measuring 20,000-40,000 square feet compared with Target’s traditional 140,000-square-foot stores, to serve as fulfillment centers for online orders and enable nearby shoppers to swing by to pick up orders in-store.

Target’s omnichannel strategy is being led by a management team that includes 16-year Amazon veteran Arthur Valdez, whom Target hired in February as executive vice president for supply chain; chief information officer Mike McNamara, who spent nearly 20 years at European retailer Tesco before joining Target a year ago; former Target finance chief John Mulligan, promoted in August to the new role of chief operating officer; and Anu Gupta, a former Michaels Stores and Safeway Inc. executive named in September to fill the new role of senior vice president of operational excellence.

 

 

 

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