Does Target have a problem online?

Discussion
Nov 19, 2015

At least in its stores, the story is pretty positive for Target these days. Under CEO Brian Cornell, the company has:

  1. Removed the anchor from around its corporate neck that was its Canadian operations;
  2. Made a deal with CVS to bring in needed dollars while getting out of a category (pharmacy) where it was far from best in class;
  3. Largely put behind the company the massive 2013 data breach that caused a loss in consumer confidence and sales along with it;
  4. Remodeled stores to create a more engaging customer experience while also partnering with designers to bring back some of its cheap chic cachet;
  5. Made use of digital sales promotion tools such as Cartwheel to help drive traffic and sales, primarily, in everyday product categories.

All in all, the plans put in place by Mr. Cornell and company have paid off as Target has seen an increase in customer traffic at its stores for four quarters running. In the latest quarter, Target achieved a 1.9 percent same-store sales increase (on the high end of its expectations) as traffic improved 1.4 percent. Significantly, the chain said that key categories where it has increased its focus — baby, kids, style and wellness — achieved same-store growth that was two-and-a-half times faster than the company average.

Target Brooklyn

Photo: RetailWire

Online contributed 0.4 percent to Target’s same-store number for the quarter as the chain reported a 20 percent increase in revenues. Unfortunately, while Target’s percentage change was higher than the 15 percent improvement for e-commerce sales across the U.S., according to the Census Bureau, it fell well shy of the 30 percent improvement the retailer was expecting.

On the company’s earnings call, Mr. Cornell pointed to apparel and electronics as categories that underperformed for target.com during the quarter. Despite failing to meet expectations in the most recent period, Mr. Cornell reaffirmed his belief that digital will be a growth driver across the company as a whole.

"Regardless of where our guest demand is ultimately fulfilled, in a store or in a guest front porch, we know the vast majority of our sales in all of our channels are digitally enabled," said Mr. Cornell (via SeekingAlpha). "For example, our guests access our brands through a digital device, both in advanced hub and during their trip to one of our stores. As a result, we don’t think that digital is simply a selling channel, but a critical enabler of the shopping experience in all of our channels. This has significant strategic implications, both in terms of organizational structured and the way we reward our team."

Target was not the only major brick and click retailer to struggle online. As Bloomberg reported, Walmart’s online sales grew 10 percent during the third quarter.

Do you see lower than expected online sales for Target and Walmart as a blip or an indication of bigger problems? What are the biggest challenges and opportunities facing target.com?

Braintrust
"Until they effectively compete online Target and Walmart will be at an overall disadvantage, since online shopping is growing at a rate that far exceeds brick-and-mortar levels."
"Will a busy mom choose Target online or just go to Amazon Prime where she knows she is assured two-day delivery? For Target, Walmart and the other bricks-and-mortar retailers, the question is not either/or, but one of leveraging both for omnichannel synergy."

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15 Comments on "Does Target have a problem online?"

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Max Goldberg
BrainTrust

Target and Walmart face online competition that they don’t face in the brick-and-mortar world: Amazon. Online, Amazon dominates through technology and customer service that currently are out of reach for the two big box retailers. Walmart has spent $1.5 billion on its online operation and still can’t crack the code. Target, who was initially aligned with Amazon, has struggled to find its online footing since going out on its own. Until they effectively compete online Target and Walmart will be at an overall disadvantage, since online shopping is growing at a rate that far exceeds brick-and-mortar levels.

Dr. Stephen Needel
BrainTrust

Target’s biggest challenge is that they are Target. Setting expectations at 30 percent growth is either wishful thinking or bad research/analytics or bad management. When I do a Google search and Target is one of the options, invariably it does not take me to that page on their website. Most of the time they don’t even carry what I’m looking for. Yes, I get to target.com, but not in a way that’s going to keep me there. If they want a better online experience they could start there.

Chris Petersen, PhD.
BrainTrust

Amazon has the best systems, infrastructure and distribution bar none. And they have Prime with well-established household relationships and the best shipping available. Will a busy mom choose Target online or just go to Amazon Prime where she knows she is assured two-day delivery?

For Target, Walmart and the other bricks-and-mortar retailers, the question is not either/or, but one of leveraging both for omnichannel synergy. There is a key issue of retail metrics for omnichannel going forward. If a customer shops online to make a choice, but purchases in-store, who gets credit for the sale?

Survival will not depend upon growing online per se, but growing the “whole” regardless of whether the virtual or physical cart records the sale.

Carol Spieckerman
BrainTrust

Unlike Walmart, Target has been has been a digital laggard. Walmart has a more mature online business so its growth expectations should be more modest. Target is experiencing a hangover from the stubborn store-centricity that characterized Gregg Steinhafel’s reign and it forfeited an opportunity to engage its higher-income shoppers online before others got to them. In the meantime, the data breach and a series of online mishaps compromised the trust that is required for shoppers to buy items sight-unseen. Now Target is in the unenviable position of having to woo its own loyal customers over to its still-unimpressive online shop. Lots of work to do.

Karen McNeely
Guest

From personal experience I’d say Target has a huge problem with their e-commerce. As a REDCard holder I loved the convenience, discount and the free shipping of ordering online. Unfortunately I’ve found their turn around times are horrible, the tracking info unreliable and their customer service severely lacking (two separate one-hour phone calls to resolve a relatively simple problem).

They also almost doubled the price of an item that I put on a subscription delivery on the very first subscription order. I was aware that there was a possibility of a price variance, but I had ordered this item regularly for awhile and hadn’t seen a change before. If my experiences are even what 5 percent of their customers experience they will certainly scare off potential loyal customers.

As someone who has had the utmost respect for this retailer on both a personal and professional level, I was very disappointed.

Jack Pansegrau
Guest
Jack Pansegrau
1 year 5 months ago
Isn’t online shopping simply an alternative store? So when I shop at Amazon or REI, I do so in part because I am a loyal customer of that retailer? Sure I may do a generic search for a specific product but when I decide WHERE to purchase, price is just one component. I also must trust the merchant, their return policy must be fair, price must be good, etc. So should Target/Walmart be concerned? Yes, not simply for online but for pure competition by another retailer who I identify as my store more. And the online store must be friendly, familiar and easy to use. Target and Walmart lose every time because I am at home at REI or Amazon. I trust the reviews that are key to a purchase, I understand the pricing and the sale patterns, etc. So to me, the online sales are an important part of a retailer’s presence but not independent of the overall brand. And to get me to change my shopping patterns and try a new store, whether restaurant, grocery, website, etc., that’s hard and takes lots of time to develop. And Amazon has done a great job of building a loyal following.… Read more »
gordon arnold
Guest

Closing under-performing stores is often necessary to stave off limitless losses. Closing down an entire market as in the Canada stores is a clear sign that certain key executives are in over their heads. Add to that an entire security breakdown and the sale of departments, as in pharmaceuticals, to the competition to pay for the bills and the problems become very obvious. Change is needed now more than ever if Target’s ownership wishes to move ahead. The biggest opportunity for positive change is in sales. No matter how you look at the company results sales is the largest issue. The company simply needs executives that will find a way to sell from any and all venues safely and securely.

Brian Kelly
Guest
1 year 5 months ago

Deltas are measurements of change. Expect them to change.

I was surprised by the short fall too. It is perplexing. we do know for sure that online growth is bound to slow as penetration flattens. Yet for TGT it’s been behind the online BOS curve coming off the Amazon partnership.

So it’s either external: Amazon et al; and/or internal: site experience. As I’ve never transacted online, I do not have a POV.

I do think TGT has self inflicted friction in its mobile UX. What’s the difference between its site and Cartwheel? An insert?

Or as we like to say, “retail ain’t for sissies!”

Doug Garnett
BrainTrust

The theory of “omnichannel” is that the consumer doesn’t care about our silos. So why should we be reporting and analyzing numbers based on those same silos?

What we should be learning from Macy’s and Nordstrom’s weak numbers is that the incredible hype about online isn’t making a difference in their bottom lines. So is it any surprise there are weak categories at Target? At Walmart?

Absolutely not. Yes, online is critically important. But it will NEVER outpace the stores in revenue. And seems likely to remain stuck below 10% of total revenue.

But if analysts and the industry are going to separate it out as a silo and criticize companies for “missing” numbers in that silo, then we are as responsible for hurting retailers as anyone.

Let the numbers fall where they may. And accept that, just perhaps, the incredible investment required to make the perfect online store might be wasted — that the majority of that effort that would produce far higher return invested inside the stores where consumers spend the most money.

Larry Negrich
BrainTrust

I don’t know why the quarterly growth percentage should be too upsetting, as long as Target has a more robust plan to address the online challenge.

The challenge facing Target’s online business is shared by all retailers when compared to Amazon. Each of these stores has an online presence where a consumers shops for a particular product or group of products. All good and helpful in the goal to be multi-channel. However, Amazon has been able to establish itself as an online marketplace where all products can be found and quickly procured. Prime, same-day delivery, etc. all are features that help to make the market an easy shopping experience. So, a complete strategy to become an online force is what is needed.

I am not sure that simply turning the current model into multi-channel is a long-term solution to the larger issue.

Craig Sundstrom
Guest

So one of their throw-a-dart-and-see-where-it-lands projections came in a little under…for one quarter. I had no problem checking the “unconcerned” option (not saying everything’s perfect, just that this isn’t a very meaningful metric).

More concerning to me, perhaps, is the disconnect between businesses preaching “omnichannel,” but continuing to break out online like it’s some other world — most of those sales probably came from your stores, guys…figure out a way to adjust the “same store” figures for that.

Scott Sanders
Guest
Scott Sanders
1 year 5 months ago
I can echo what Karen McNeely said about her experience shopping at Target.com. Given my poor experience recently, I’m shocked they are able to fulfill orders at all — let alone have any growth. Starting at the end, I called customer service after my order failed to process online. After maybe 30 minutes, we were able to get my cart looking right. Then it came time to process my payment, and I have a Target RedCard. The rep assured me that I was giving her an incorrect card number, which might have been poor training because my card was just replaced with a chip & PIN version in the wake of last year’s credit card hack. After telling me she could only accept a card number that starts with a 9, and mine clearly does not, she hung up on me. (My prior card did indeed start with a 9.) That was after 30+ minutes of trying to get help via online chat, and that rep couldn’t solve my issue and advised me to call the phone support line. The problems I ran into: 1. Just like Karen, items on sale were showing in my cart at full price2. A $10… Read more »
Arie Shpanya
Guest

Existing Target and Walmart customers are used to shopping in-store. These retailers haven’t given them a reason to hop online and regardless, in online retail, Amazon is king. These retailers have their work cut out for them because they have to change customer behavior in order to get the most out of their online channels. Amazon is at an advantage because it has historically been a pure play retailer and consistently delivered low prices and effective service.

Biggest challenges:

1. Converting new customers online
2. Encouraging loyal in-store customers to shop online as well
3. Handling the increased traffic (avoiding another Lilly Pulitzer crash)

Chris Simon
Guest
Chris Simon
1 year 5 months ago

I think that they need to look at their online experience and ensure it meets or beats in-store. Two examples at target.com:

  1. You can not refine your search for clothing by gender.
  2. The website should ensure all complimentary products are available on the same page. When searching for rugs, not all sizes are listed that are available.
Brooke Hawkins
Guest
Brooke Hawkins
1 year 5 months ago

The problem that Target has is that they’re really not set up for international traffic. With more than 20% of IP addresses coming from international addresses, they need to optimize for the Cross Border Customer.

Which I think is a problem for most merchants — they’re not thinking beyond their home country, which means they’re missing out on the 1.2 billion people around the world who shop online.

wpDiscuz
Braintrust
"Until they effectively compete online Target and Walmart will be at an overall disadvantage, since online shopping is growing at a rate that far exceeds brick-and-mortar levels."
"Will a busy mom choose Target online or just go to Amazon Prime where she knows she is assured two-day delivery? For Target, Walmart and the other bricks-and-mortar retailers, the question is not either/or, but one of leveraging both for omnichannel synergy."

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