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Continued: Target.com reboot thinks outside the big box

  • Article by: THOMAS LEE , Star Tribune
  • Last update: August 31, 2011 - 7:46 AM

Target Corp.'s digital reboot has begun.

After a decade of outsourcing its website operations to Amazon.com, the Minneapolis-based retailer last week reclaimed its online identity, debuting a retooled website that includes enhanced product reviews, social media and streamlined checkout.

But beyond the site's usual bells and whistles, Target.com represents a significant shift in the company's strategic thinking: that the future of its business doesn't rest solely with building big-box stores that grab market share, a tactic long perfected by top rival Wal-Mart Stores Inc., but rather the continuous digital engagement with consumers through smaller, tech-savvy stores, home computers and mobile devices.

In other words, a strategy that more closely resembles another Minnesota retail giant: Best Buy Co. Inc.

"Best Buy has spent a lot of time and money getting ahead of the [technology] curve," said Mark Fodor, CEO of retail consulting/software firm CrossView Inc. On the flip side, "Target has lagged behind Best Buy and even Wal-Mart in e-commerce. But now that Target has full control over its website, it will be real interesting to see what they do with it."

In a recent speech to Wall Street analysts in New York, Kathryn Tesija, Target's executive vice president of merchandising, said the redesigned website is only the beginning of a big push into multichannel thinking.

"We challenge ourselves to look beyond current paradigms to provide our guests the products they want when and where they want them," Tesija said. "Our multichannel guests are much more valuable to us than guests who interact with us in single channel. They shop more often and their spending is dramatically higher."

Known more for its design and merchandising prowess, Target has never really enjoyed a reputation for Internet retailing. Target doesn't disclose online sales figures, but Internet Retailer magazine estimates the company generated $1.3 billion in sales last year from its website, good enough for 22nd place among the publication's annual Top 500 Web Retailers List.

That's far behind Wal-Mart (No. 6 at $4.1 billion) and Best Buy (No. 11 at $2.5 billion). According to the magazine, Target's 2010 online sales grew 10 percent compared with nearly 15 percent for the industry, 17 percent for Wal-Mart and 13.6 percent for Best Buy.

Best Buy and Wal-Mart have long controlled their websites. Since launching Target.com in 2001, the company has relied on Amazon to run its online operations.

"In 2001, running a website wasn't necessarily a retailer's expertise," said former Target.com president Dale Nitschke, now managing partner with the Ovative/Group consulting firm in Minneapolis. "We chose to allocate our team members toward figuring out the business, merchandising, doing online marketing, doing the things Target was better at than running a tech platform. We rented space in [Amazon's] warehouses rather than build our own because we didn't know how big it was going to be.'' With technology, Nitschke said, "you always have to win credibility. Building the e-commerce business was the company's first goal. Building our audience. Now we have a big audience, how do we drive more revenue?'' In a study of 25 top retailers, CrossView recently ranked Best Buy and Target as No. 1 and No. 3 respectively for "providing a satisfying cross channel retail experience" between store and website, such as same-day pickup of Web orders in stores and accessing Web order information in the store.

Over time, retailers like Target and Best Buy started to realize not only the power of the website but also the emergence of mobile devices like smartphones and tablets that could exploit that power, experts say.

Today, Target.com attracts about 35.3 million unique monthly visitors, according to Internet Retailer. Last year, Target.com attracted 35 percent of all traffic from shoppers using search engines.

"Now, what started out as your website experience has evolved into interacting with a mobile device or an app, which is transforming how retailers think," Nitschke said. "All of sudden, [the website] is not just [an] e-commerce channel."

To fully exploit these new technologies, Target needed to not only assume control over its website but remake it in its own image. In March 2009, the company contacted SapientNitro, one of the world's largest interactive marketing and technology services firms. (SapientNitro led the April relaunch of StarTribune.com.)

"What they saw was the importance and convergence of mobile and website," said SapientNitro vice president/managing director Brad Simms. "They knew that the competition was going to make big bets in the digital space. They said 'We're currently on Amazon. We know where this space is going to go. We need to own it.' They wanted to control the experience of their website so they could understand what they can actually do."

In the end, Target executives say they no longer see their stores, website and mobile platforms as separate entities. A sale is a sale.

At the Citi Global Consumer Conference in May, an investor asked Target Chief Financial Officer Doug Scovanner how much of the company's $100 billion annual sales goal would come from Internet growth.

"We don't have an explicit growth rate from the Internet in that number," Scovanner said. "And in my mind, it will become more and more difficult to allocate our sales between what you think of as 'the Internet' and what you think of as 'the store base.'

"It's one of the reasons why we report a single segment," he continued, "because we knew that it would become harder and harder, given this multichannel idea we had in mind."

Thomas Lee • 612-673-4113

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