Posts Tagged 'Target'

Should customers pay extra for service?

RetailWire recently posted an online discussion — about whether customers will pay an upcharge for customer service — that triggered plenty of comment. My perspective follows, and it is based on the idea that there is more than one way to define “service”:

To answer the question, you have to define “customer service” differently for different kinds of retailers. Customer service at Nordstrom means “high touch” and the SG&A cost of providing it is covered by high merchandise gross margins (or it should be). Conversely, expectations of “customer service” at Target are totally different — shoppers expect store shelves to be well-stocked and checkout lines to be efficient. Again, this lower-expense model is reflected in tighter merchandise margins.

My point? Customers are already paying for the “customer service” they seek in the stores they choose, based on the “cost of goods sold” that they are willing to pay. Any surcharge imposed by retailers to meet or exceed these expectations (hidden or otherwise) would be a bad idea.

Will Target’s latest reset work?

Target’s CEO announced last week that investors should expect tough 2017 returns as the company invests in stores and more competitive pricing. Here’s my recent comment from RetailWire:

Walmart was criticized a couple of years ago for investment spending on its stores because it was likely to put a dent into short-term results. But the long-term view for WMT is brighter because of this decision, and Target is aiming for the same kind of outcome.

But Target has some specific challenges ahead that a store revamp won’t fix on its own:

1. The longstanding conflict between “cheap” and “chic”: Target needs to be more price competitive but has built its brand promise on more aspirational goods;
2. The continuing lack of traction in the grocery business, especially to drive more frequent visits;
3. The head start on e-commerce (and omnichannel) that its biggest competitors already have;
4. The company’s longstanding inability to keep its shelves and pegs filled.

I can’t overstate the importance of the last point. A trip to Target where a third of the shopping list can’t be filled is a waste of time, no matter how compelling or competitive the merchandise might appear.

Two comments on omnichannel

Here are a couple of RetailWire posts on the subject of whether e-commerce is eating into brick-and-mortar retail. The first comment was published after stores reported year-end sales:

“Omnichannel” retailers like Macy’s, JCP and Target are still heavily dependent on their physical footprint. Each store reported rapid e-commerce growth (from 17% in Penney’s case to 30% at Target), yet each of them also reported total comparable-sales declines in the low single digits. So it’s clear that the combination of brick-and-mortar and omnichannel isn’t driving sales yet.

All of these stores and others have opportunities to improve their assortments, customer service and overall store experience. Omnichannel initiatives like BOPIS and “ship from store” have put even more strain on retailers’ ability to execute these “Retail 101” issues better. But until they do, their overall sales will continue stuck in neutral.

The second comment was published today:

“Cannibalization” may be the wrong term, because retailers with true omnichannel strategies need to think about how to grow the overall pie. Continuing to think about business silos (e-commerce vs. brick-and-mortar) will stand in the way of a consistent overall approach to the business.

But there’s no doubt that brick-and-mortar is losing its relevance, as seen in the growing number of chains closing locations or throwing in the towel altogether. To go back to the question of how to grow the overall pie…why isn’t that happening? Why aren’t strategies like BOPIS (intended to drive traffic to stores) driving incremental sales?

These aren’t easy questions to answer, but I continue to believe that the operating demands of turning a physical store into a mini-distribution center are eroding the service-centric reasons why consumers shop in those stores in the first place.

“Cannibalization” may be the wrong term, because retailers with true omnichannel strategies need to think about how to grow the overall pie. Continuing to think about business silos (e-commerce vs. brick-and-mortar) will stand in the way of a consistent overall approach to the business.

But there’s no doubt that brick-and-mortar is losing its relevance, as seen in the growing number of chains closing locations or throwing in the towel altogether. To go back to the question of how to grow the overall pie…why isn’t that happening? Why aren’t strategies like BOPIS (intended to drive traffic to stores) driving incremental sales?

These aren’t easy questions to answer, but I continue to believe that the operating demands of turning a physical store into a mini-distribution center are eroding the service-centric reasons why consumers shop in those stores in the first place.

 

 

 

 

Target’s continued struggles with groceries and supply chain

I’ve combined a couple of recent RetailWire comments here — first about changes at the top of Target’s grocery business, and second about new hires on the logistics front — to reflect my concern that the company continues to have problems executing. First, about food:

It’s hard to judge Ms. Dament’s performance based on less than 18 months on the job and the possibly insurmountable challenge she faces. Maybe she underperformed, maybe it was a bad cultural fit or strategic clash –who knows? Anybody trying to turn this around quickly has not been dealt a winning hand.

Brian Cornell wrote off the Target Canada fiasco very quickly, but I’m not sure he can walk away from the grocery business so easily. The company spent billions on remodels and infrastructure to establish the business, and it doesn’t appear to have a replacement strategy waiting in the wings.

But how does Target fix it? It’s not a “top of mind” business and doesn’t have the critical mass needed to draw weekly shoppers. Perhaps Target should hire somebody from a more disruptive grocer (think Aldi or Trader Joe’s) who can offer up a more innovative, curated approach to the category.

Second, about logistics:

I’m no expert on supply chain management, but it’s clear that Target recognizes a logistics problem when it hires executives from two of the best in the business — first Amazon and now Walmart. I also don’t know whether Target has spent competitively over the years on logistics (compared to its competitors) but this is a longstanding issue. One of the biggest problems that doomed Target Canada was its inability to keep the store shelves filled, and anybody who shops Target regularly sees plenty of empty pegs on a regular basis.

Target has long pushed the idea of inventory turnover at the expense of satisfactory in-stock rates. If their new hires can accomplish both goals, more power to them….but the company needs to commit to higher service levels first, not just more speed and lower cost.

Is the pendulum swinging back on early Thanksgiving openings?

I’ve argued for awhile that earlier and earlier Black Friday (or Thursday) openings are counterproductive. Here are some recent thoughts posted on RetailWire:

Some of the biggest players (Walmart, Target, Macy’s, Kohl’s, JCPenney and Best Buy) still plan to open on Thanksgiving. But the pendulum is swinging back, and the Mall of America’s announcement that it plans to close on Thursday will be a major influence on other mall operators. It seems clear that the push for earlier “early bird” hours on Black Friday (followed by midnight openings, followed by Thursday openings) has had a diminishing effect on sales — by draining any sense of urgency out of Friday morning shopping. (And the availability of goods online hasn’t helped, either.)

It’s hard for the retailers who insist on being open for Thanksgiving to be the first one to blink, but it seems clear that consumer sentiment is tugging them in that direction.

And this more recent post:

While the reports of the death of Black Friday are greatly exaggerated, there is no doubt that it’s lost importance on the retail calendar. The shift to e-commerce is part of the reason, but the bigger cause is retailers’ greediness in pushing their “early bird” hours earlier and earlier and finally opening on Thanksgiving itself.

My long experience working for a company that knew how to “nail” Black Friday tells me that the event was once as much a social occasion as a way to hunt for deals. Opening earlier and earlier never seems to result in more net sales but actually becomes counterproductive when any sense of urgency about “early birds” flies out the window.

Walmart shows modest Q2 gains

Walmart stood out from most other retailers by reporting a comp-sales gain for the 2nd quarter, instead of a decline. (There continues to be strength in the off-price segment, too.) I think part of the reason is Walmart’s success at the food and commodity businesses while Target continues to struggle. Here’s my take from a recent RetailWire discussion:

Walmart veers from underperformance to overperformance over time, and the latest “overperformance” is really only in contrast to competitors like Target. A very modest comp-store sales increase is nothing to write home about when Walmart continues to lose share to Amazon, dollar stores, and other competitors. That being said, Walmart is doing a consistently better job drawing in regular food shoppers than Target, and some of its investments in store improvements are starting to pay dividends. But a 1.6% same-store increase isn’t cause for celebration, even in today’s tough environment for general merchandisers.

Is stingy inventory management costing sales?

There is some recent reporting (about Home Depot and other retailers) that stores are trying to keep their inventory levels very lean, and are willing to send customers to their websites if their shopping trips end with an out-of-stock. I addressed this problem recently on RetailWire:

I’ll use myself as an illustration of why the answer to the headline question is “yes”: Over the holiday weekend I had three separate transactions with Amazon (for K-cups, indoor spotlights and a new laptop battery) that saved me three different shopping trips. I had the assurance that the items were in stock, would show up quickly and would be priced competitively. It’s not just the price and the convenience of the transaction, but also the assurance that the items are in stock.

This is a powerful rebuttal to the brick-and-mortar model, especially as more stores try to keep up with Amazon by offering too much selection in a limited amount of space. Retailers have forgotten the maxim of “Narrow and deep,” and find it more and more difficult to stay in stock on such a broad array of SKU’s. (In fact, Target has had this problem for years.) This is one more way in which “omnichannel” has turned into a double-edged sword for many retailers — and not the growth driver it was imagined to be.