Last month the prominent retailing executive Ron Johnson shot back at an interviewer on Yahoo Finance by insisting that it’s Amazon.com execs who should have trouble sleeping at night, not those from Walmart or Target Corp.
“I mean, seriously,” Johnson continued. “Amazon same-store sales in the U.S. are now single-digit. Target and Walmart, these big retailers have learned how to leverage their stores’ inventory to create a better shopping experience. That’s where customers are going right now.”
Johnson’s remarks didn’t seem to get much attention at the time, maybe because he’s not the business celebrity he once was — with senior jobs at Target and Apple before he became CEO of J.C. Penney. It’s also not easy to imagine Amazon founder and CEO Jeff Bezos up and pacing at 3 a.m. fretting about anything, including Target.
Yet Johnson has an argument worth understanding, that Target hasn’t just stayed in the game against Seattle-based Amazon, but now looks well-positioned.
The difference maker isn’t Target’s traditional strength as a savvy merchandiser, either. This is an unfolding operations story.
What Target’s been doing in operations filled just a slice of nearly two hours of an otherwise not very memorable set of presentations and a Q&A for securities analysts and investors this week in New York. COO John Mulligan had a polished investor-relations pitch on operations, of course, and he had concrete and interesting stuff to say.
Working on operations and supply-chain management, by the way, doesn’t just mean looking for ways to lower costs. What happens in the backroom and the warehouse can have everything to do with the kind of experience a retailer can give its customers. That’s an important lesson Amazon has been teaching traditional retailers.
You may remember Amazon as an online bookstore that offered lower prices. What wasn’t nearly as well understood as Amazon blossomed into the Everything Store is how it came to provide a better customer experience, too.
With features like one-click ordering and eventually same-day delivery, it simply became easier to buy from Amazon. When an Amazon customer stepped outside the front door to walk the dog, an item impulsively ordered earlier that day over an iPhone had already been boxed up and dropped off.
It took a lot of hard work inside Amazon to make one-click ordering and same-day delivery work every time all over the country. By becoming really good at efficiently and painlessly getting products from a manufacturer and into the hands of customers, Amazon had become the same kind of threat as Walmart, which is a different kind of master at the art of managing operations.
Neither was all that hot at merchandising — presenting just the right collection of products in the most appealing way. Even now it’s hard to imagine how consumers genuinely shop on Amazon.com rather than use it as a procurement site to search for price and shipping data on items they already know they want.
When Mulligan began his talk this week in New York on Target operations, he pointed out that people with his job rarely get to present highlight reels. This year he did, a short video on all the ways a Target customer can get the stuff they buy.
Customers can select their own items off a store shelf and drop them into a cart, get them picked from a store and shipped, get them picked by Target staff and delivered, or they can place an order online and fetch it themselves inside a store. Or, using a newer service, they can have a Target employee hustle it out to their waiting car in the parking lot.
“Placing an order and waiting for it to ship is something consumers already know how to do. But having an order popped in your trunk just an hour after you order it is a pretty new concept,” Mulligan said. “We made close to 2 million of those parking lot deliveries last year, and nearly all of them took less than two minutes, many even less than one minute from parked car to product handoff. Guests love it. And they tell us it’s easier and more convenient than having a box dropped off on their step.”
As it turned out, the customer really did want more ways to buy stuff than just a traditional store or online purchase carried up the steps by a UPS driver. No one needed a Harvard Business School education to figure that one out, but Target seems well on its way to mastering the much harder task of providing its customers all those delivery options at a cost Target and its customers can afford.
This wouldn’t be possible without Target’s more than 1,800 stores. Mulligan stressed that turning these stores into mini-distribution centers to pick, pack and deliver products to customers hasn’t cannibalized traditional sales in a store. Sales per square foot of store space have been increasing.
Using stores as more than stores to improve the customer experience is not something easily matched by companies that started as e-commerce retailers, having assumed sprawling stores would soon be relics.
This was the basic observation of Minneapolis technology research and venture capital firm Loup Ventures as its partners boldly predicted last January that 2018 would see Amazon acquire Target.
“Amazon has a growing need for Target’s skills — merchandising, curation, details, space and experience,” Loup Ventures partners Gene Munster and Andrew Murphy wrote just before last Christmas, updating their famous prediction. “Amazon’s core retail competency lies in logistics, not merchandising.”
Their research note was one part a mea culpa on why a deal that made so much sense to them didn’t happen last year, but one part was a case for why Amazon’s taking over Target still seems to make so much sense.
The idea won’t appeal much to anybody at Target, though, at least not anymore. It’s Amazon that has the strategic problem.