Target has announced the test of its latest pilot, known as Restock. The next-day delivery service will offer nearly 1,000 household essentials, including laundry detergent, paper towels and coffee, for sale off of a digital shelf.
Items ordered via Restock will be delivered the next day, offering the big-box retailer a foothold in the competition created by Amazon Prime and, more recently, Walmart.
"Retailers no longer have the luxury of trying to force consumers into channels. Artificial walls segmenting how consumers shop have collapsed with technology and competition. For any retailer, it is critical to find the intersection between the products they sell and consumer demand," Greg Portell, lead partner in the retail practice of A.T. Kearney, told FierceRetail.
"In the case of Target, they intend to compete on staples. Failure to answer competitive challenges from Walmart, Amazon and others would cede a huge and only growing part of this market. Conversely, Amazon’s entry into brick-and-mortar is driven by a similar need to meet consumers where they are not a channel defined by retailers."
The pilot will begin this summer in Minneapolis for customers who have a Target REDcard. Guests will then be able to go online, fill a box with multiple items and have their orders shipped to their home for a flat fee.
Target plans to fill the boxes at nearby stores so that orders placed before 1:30 p.m. will be received by the next business day.
Target said on its corporate blog that it is still “fine-tuning” the experience by testing various enhancements.
The big-box retailer is jumping into the game at just the right time, as the home-delivery market is still very much in flux. According to Portell, the biggest challenges are still the last mile and dealing with the high expectations and low margins that come with delivery. However, he sees Target's advantage over Amazon in this realm in that the retailer is working from an existing infrastructure of stores.
"Still, unlike Walmart, Target has spent years trying to leave behind a no-frills brand," he said. "As a result, Target has lower margin for error and will need to achieve customer satisfaction quickly. Failure on either front will spill into Target’s mainline business."
Portell also sees Target unique and powerful customer base, acquired from its Cartwheel and REDcard programs, as a big contender for competing with Amazon's Prime membership. Combine this customer data with a well-positioned brick-and-mortar, and Portell thinks the company could have a winning model.
"Rather than worrying about predictive analytics, the advantage will come from anticipatory analytics where they leverage data to shape consumer preferences rather than react to them. The ability to use the program to influence and potentially circumvent consumer preferences will become a differentiator of these programs. At some point, the benefit of consistency and convenience outweighs the hassle of logging in to make account changes," he said.
Eventually, when Target takes the program to scale, it will have to make sure that products are staged in the right locations to fulfill demand, which will increase inventory distributed across their network.
Starting with home goods is a smart move, according to Michael Elmgreen, CMO at Handshake, since these items are ordered frequently at high volume. But he warns, providing convenience on these goods is a must have. Elmgreen also noted that Walmart and Amazon are miles ahead in terms of operating at scale.
"The fact that this program hasn’t even been rolled out to a consumer test market shows just how behind the curve they are in executing this program," Elmgreen told FierceRetail. "Even more of a challenge will be that the old Target customer base are likely now Amazon Prime members who not only receive same-day delivery for free, but also a wide variety of other services from digital streaming to cloud storage." Plus, Target will have the challenge of managing the ecosystem.
"Target is unlikely to be building this with in-house resources. Beyond the pilot, it wouldn’t make sense at scale," Portell added. "The use of partners over such a vast network creates sizeable problems from employee performance to network scheduling. The bet is too big for Target to leave execution decisions to their partners without strong oversight. They will need to manage behaviors tightly without overstepping co-employment regulations."