Feb 29, 2016 - Target employees filled online orders before the doors opened to Black Friday shoppers last year the chai
Target Hires Executive to Lead Supply Revamping Retailer is combining local selections with distribution overhaul
Target employees filled online orders before the doors opened to Black Friday shoppers last year the chain’s Jersey City, N.J., location. Target on Monday said an Amazon.com executive is joining the retailer to lead its supply-chain trans formation. PHOTO: BRYAN ANSELM FOR THE WALL STREET JOURNAL
By PAUL ZIOBRO Updated Feb. 29, 2016 6:21 p.m. ET
Target Corp.’s plan for a retailing future that marries its stores and online sales is being tripped up by a supply chain from the past. The Minneapolis-based discount chain is moving away from a largely one-size- fits-all model toward one that can be customized to give each of its 1,800 stores tailored layouts, product selections and ordering patterns. But that approach is being stitched onto a distribution system designed before e-commerce demanded that its stores also become local distribution centers and showrooms for online customers. Now, Target is racing to modernize its supply chain operations to handle all these jobs as it addresses problems that cropped up during the transition. In recent quarters, Target has struggled with inventory shortfalls as it tried to cater to online and in-store shoppers at the same time.
“The systems were built to continue to replenish as a no rmal store,” Target Chief Executive Brian Cornell said recently. “Now, we’re shipping from stores. Now, we’re trying to localize items. It has added greater complexity.”
To help address the new challenges, Target on Monday hired retail supply chain veteran Arthur Valdezas its chief supply chain and logistics officer. Mr. Valdez, who spent 16 years at Seattle-based Amazon.comInc., will join the retailer March 28. He is the most senior hire that Target has made from the online retailer, which formerly ran Target’s Web operations for a decade until 2011. He joins Target amid top-down reviews of its supply chain and a separate project designed to transform grocery operations, where there are even more problems to fix. The future look of its supply chain is expected to be one of the areas Target executives will discuss on Wednesday during an annual meeting with Wall Street analysts. Mr. Cornell, in his second full- year atop the sixth-largest U.S. retailer by sales, has brought greater focus to what products Target should sell, zeroing in on categories like style, baby, children’s and healthy items. The strategy has boosted store and online traffic for five straight quarters. In the most recent quarter, Target’s digital sales accounted for 5% up from 2.1% in the first quarter of 2014. Some of the work is ongoing. Last year, the retailer set up a supply chain action team to work on the lack of inventory, which have improved in recent months. Much of that work has been to better understand the flow of goods in and out of its distribution centers, so it can ship goods quickly to online shoppers while making sure its store shelves are stocked.
The problems Target is addressing are common to large brick-and- mortar retailers who have added new ways to serve online shoppers. Nikki Baird,managing partner at the research firm Retail Systems Research, says these capabilities—like letting shoppers pickup online orders in stores and shipping from stores—are disruptive to retailer’s regular operations. “Retailers are really starting to pull on the frayed edges of their supply chains,” Ms. Baird said. She cited an example of an unnamed apparel retailer who sold out of an item online before it was able to use it to draw shoppers into stores.
Customers push a Samsung television to their car outside a Target store in Jersey City, N.J., on Black Friday. PHOTO: BLOOMBERG NEWS
At the same time, Mr. Cornell is trying to rethink its stores’ selection to better attract shoppers by appealing to local tastes. But it isn’t always easy. In Chicago, where Target has tested the earliest stages of the localization plans, buyers had to manually input orders for local items. “It is literally muscle and paper,” Mr. Cornell said. And what worked in one part of the city, didn’t in another. Target has had elements of localizing stores in the past. For instance, stores already carry gear for regional sports teams and local colleges although the vast majority of merchandise was the same across its stores. Customization isn’t just a means to get local delicacies on shelves, but also to tackle some basic problems—like how many feet of paper towels or boxes of cereal are needed to keep shelves stocked in very different locales. In the past, Target could adjust to those patterns more easily
when the supply chain required moving goods from distribution centers to shelves. Newer problems are tougher. Target wants to do even more. Mr. Cornell recently showed off some of the new ideas at a 160,000-square- foot Target in Boston, including an expanded sporting goods section with Red Sox, Celtics and Bruins team apparel. The store’s food section stocks locally made Wachusett beer, Downeast Cider, and Cape Cod brand potato chips. And it carries extra- long twin bed sheets to fit dormitory beds at the half dozen colleges within walking distance. “You can talk about the next shiny object but if it doesn’t have a stro ng foundation to sit on, it’s a short term conversation,” Mr. Cornell said. “You can get a little excited but it’s not sustainable.”
