Develop a comprehensive strategy, both concept and implementation
1- Industry Background
Situational Analysis: The online shopping experience is changing the landscape of retail. Based on recent studies E-commerce spending in the United States hit approximately $262 billion in 2013, up 13.4% from $231 billion last year, according to Forrester Research Inc. In 2017, online spending will reach $370 billion, which represents a nearly 10% compound annual growth rate from 2012. The U.S. Commerce Department said that U.S. e-commerce sales totaled $225.5 billion in 2012, up 15.8% from $194.7 billion in 2011. Total retail sales, which include e-commerce sales, reached $4.4 trillion in 2012, the Commerce Department said. Also in 2013, web measurement firm comScore Inc. says online shoppers in the United States spent $186.2 billion in 2012, up 15% from 2011. ComScore bases its spending figures on online purchase data from its panel of about 1 million U.S. online shoppers.
In the United States, e-commerce spending growth will stem from such factors as larger retail chains
investing more in what is increasingly called “omnichannel” efforts—tying together stores with the web
and mobile—along with more consumers using smartphones and tablets, and what the report calls
“increased comfort with web shopping”. Forrester Group suggests that omnichannel shoppers spend
more on average than a pure online or offline shopper. Forrester predicts that total omnichannel buyers
will increase by 2.3% (2012-2017) and spend per buyer will increase by 7.5% (2012-2017). Generally
speaking, omnichannel shoppers are more likely to be parents than store-only shoppers. At the same
time, E-Marketer predicts mobile sales will drive 24% of total online sales by 2016, a 45% increase from
2012. More than 25% of those sales will be made on a smartphone, while 62% of the online sales will be
made from a tablet. 1
These rising numbers are serving notice to traditional brick-and-mortar-only retailers who up to this
point have had moderate success integrating their online channels and retail locations to drive
additional consumer purchases. Target Corporation seeks solutions to enhance its supply chain to
increases its online and traditional in store sale capacities effectively and efficiently.
2- Target
Founded in 1902, Minneapolis-based Target Corporation is now the second-largest general merchandise
retailer in the US. Its first store opened in 1962 in the Minneapolis suburb of Roseville, Minnesota with a
focus on convenient shopping at competitive discount prices. In addition to target.com, which
consistently ranked as one of the most-visited retail websites, Target serves guests (or customers) at
more than 1,800 stores across the U.S and in Canada (until 4/2015)2.
1 Rueter, Thad. “US e-commerce TO Grow 13% in 2013” Internet Retailer March 2013
https://www.internetretailer.com/2013/03/13/us-e-commerce-grow-13-2013 2 Target Corporation www.target.com/corporateresponsibility
https://www.internetretailer.com/2013/03/07/canadians-browse-and-buy-more-online-2012
https://www.internetretailer.com/2013/02/15/e-commerce-grows-16-2012
https://www.internetretailer.com/2013/02/07/e-retail-spending-jumps-15-2011
http://www.target.com/
https://www.internetretailer.com/2013/03/13/us-e-commerce-grow-13-2013
http://www.target.com/corporateresponsibility
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Target whose motto is “Expect More. Pay Less.” has set two conflicting objectives: (1) keeping items at
low price and (2) selling high quality items! By the low-price strategy, Target contains more value per
dollar and is more attractive to consumers. Simultaneously, by high-quality items strategy, Target is
eager to present wide diversity of high quality items. With this two conflicting objectives, Target needs
to constantly enhance its currently complex supply chain.
3- Channel Structure and Current Process
Target Supply Chain consists of four essential levels:
– Level 1 includes all domestic and overseas suppliers.
– Level 2 contains only one member that is the Target Import Warehouse (IW). Presently, Target
operates four IWs located in Rialto, CA; Savannah, GA; Lacey, WA and Suffolk, VA. These warehouses
receive consignments from all suppliers and ship them to the Regional Distribution Centers (RDC),
Target Food Distribution Centers (FDC) and Target.com Fulfillment Centers (FC). Once IW receives
container shipments, its works to implement the following tasks: first, they count and sort goods
according to their key characteristics: production lot number, stock-keeping unit number, case pack
size, expiration date, etc. Then, they repackage and label all products. Packaging guarantees the
safety of products in transit. Labeling and SKU’s help staff track the location of products. Finally,
they ship the ready items to different DCs. Moreover, at IWs all items are checked for damage and
quality.
– Level 3 consists of Regional Distribution Centers (RDC), Target Food Distribution Centers (FDC) and
Target.com Fulfillment Centers (FC).
o RDCs receive shipments of store inventories from IWs and vendors and ship them
directly to Target stores nationwide. Currently, Target operates 26 RDCs in 20 states.
Inside of each RDC, the following value-added activities are conducted: product mixing,
contingency protection, packaging, private labeling and delivering. Given the fact that
Target sells high variety of items, it is necessary for RDCs to break-bulk from the
inbound shipments to various required assortments and then ships them to separate
locations.
In addition, RDCs should consolidate products from different suppliers into a single large
shipment. Finally, like all distribution centers, Target RDCs have another duty as well:
they store some merchandise to minimize the chance of stock out at Target stores which
is reserved for replenishment. Thus, if a Target stores have some products at low
inventory levels, they can get products from the closest DC as soon as possible.
Consequently, Target creates time utility for goods3. The stored items at each DC are
shipped to the right store as needed. In this way, place utility is added to products.
3 As discussed in class, it means economic value added to an item by having it at a demand point at the right time when it is required.
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o Target FDCs are used to channel perishable food items. Presently, Target owns four
FDCs located in the Florida, Iowa, Southern California and Texas. Target FDCs perform
similar functions as RDCs. Nevertheless, the major difference here is that the FDCs focus
on the distribution of perishable food, especially frozen, refrigerated and fresh products.
It therefore means additional tasks required to be conducted at FDCs. This task is the
safety and quality management to ensure all items are fresh.
o Target FCs are specialized in managing orders from Target.com. They are the only
distributors in Target supply chain that can distribute products directly to consumers. A
Target FC performs all the order fulfillment services including shipping services to
customers, returning services and all inventory storage functions. It also provides
products that are not sold at a local Target stores.
– Level 4 is a retailer level including over 1,800 Target stores across the US. They receive products
from DCs and vendors then sell them to consumers.
Currently Target owns its distribution fleet consisting of approximately 8600 dry vans and 700
refrigerated trailers. Target utilizes 3rd Party Logistics companyies like Swift, Ryders, and Hogan to
transport these trailers. Target believes that managing its own fleet is an effective distribution strategy
because Target has total control on its inventory. Items from all DCs are shipped by truck; Target
currently distributes its stock through its network of DCs, as well as contracting with third parties and
direct shipping from vendors. Anything that is ordered from Target.com travels through Target
Fulfillment Centers. The item/items are either directly shipped to the customer or will be available for
pick up at a Target store. Target introduced ship from store to guest in 2014.
4- Current Merchandising Strategy
Target’s mission is to make Target the preferred shopping destination for our guests by delivering
outstanding value, continuous innovation and an exceptional guest experience by consistently fulfilling
our Expect More. Pay Less.® brand promise. Target is dedicated to providing guests with the right
merchandise mix, from everyday commodities and grocery offerings to trend-right home and apparel
lines. To remain relevant to its guests over time, Target merchandising is focused on the following areas:
Differentiation is about the unique and compelling merchandise guests can only find at Target –
from exclusive merchandise by top designers, to its industry-leading list of signature national
brands, to its exclusive owned-brand portfolio.
Value and low price promise is a balance of design, quality and affordability.
Reliability is about having what guests’ want, when they want it, and where they expect to find
it.
Frequency is about increasing guests’ visits to stores by creating a convenient shopping
experience that meets their lifestyle needs.
New strategies for growth include CityTarget, which are smaller format stores located in urban areas
and Target Express, catering to college students.
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5- Typical Customers
Target works to appeal to a range of customer segments, including women, kids, teens, young singles
and families. Target’s guests (or customers) are young, well-educated families who live active lifestyles.
The median age of Target’s guests is 40; they have a median annual income of $64,000. Over 55 percent
have completed college and approximately 43 percent have children at home.
6- Project Questions
1) How can Target improve the relationship between its retail stores and its online sales to
boost omnichannel capacity by utilizing our current supply chain?
2) How can Target improve its online sales capacity and/or presence through the retail store
experience and Target Distribution Centers?
3) What collaborative strategies between its online and offline channels can be implemented
to enhance the shopping experience and attract guests? Then fulfill their needs quickly?
4) How can Target enhance its distribution strategy to achieve a more cost-efficient supply
chain while reducing order lead-time and improve online sales/presence?
7- Additional Hints
1) Develop a comprehensive strategy, both concept and implementation, that will improve the
integration between Target’s retail stores and online presence in order to attract omnichannel
guests and drive additional sales. Focus on delivering this strategy through the lens of Target’s
Merchandising Strategy and what effects will this have on the supply chain?
2) Apply the concepts and tools discussed in your course lectures. You should support your
recommendations using those tools and concepts. You are allowed to use any concept/analysis
method that you have learned in your other related courses e.g., Operations Management,
Logistics or Supply Chain Management. For example, you can justify your recommendation using
a SWOT analysis (Internal: Strengths/Weaknesses, External: Opportunities/Threats) of the
current situation Target faces in a cross-channel environment as well as a second SWOT analysis
based upon implementation of the proposal.
3) All your analysis and main recommendations MUST be related to supply chain concepts. It
means marketing-oriented solutions can be only accepted as “side points” or post-hoc but not
as the main recommendation.
4) You are allowed to narrow down your analysis to specific product categories, for instance,
makeup items. You can also discuss what product categories might represent the biggest
opportunity for growth by improving Target’s online and offline channel integration? Does the
guest perceive a difference between Target’s online and offline assortments for that specific
product? Then, form all your analysis based on the specific item you chose.
5) In your analysis, you might consider important factors such as
a. Item value (or price) e.g., how important is price consistency and transparency across
channels? How does the guest assess value of an item?
b. Customer service level: what is the ideal service level for online vs. in store sale? What
services should be provided to improve guests’ shopping experiences? How can services
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be used to create more loyalty? What services will increase the purchase conversion
rate of online visitors and/or store visitors?
c. Fulfillment methods: What types of fulfillment options are competitors offering today to
multichannel shoppers? What fulfillment options should Target consider for busy
families?