Rearranging deckchairs on the Titanic: Target’s last gasp?

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Let me start by saying that I love Target.  I know loving big-box stores is unpopular for a variety of reasons (some of them quite valid), but the convenience of having a well-organized store where I can get everything I need, decently priced, and in one trip provides a value that is very difficult to walk away from.  Target’s store brand also typically provides quality on par with most name-brand offerings. That being said, it is clear that the large retail industry is in trouble, and Target may have just signaled the beginning of its demise.

On April 20, 2017, Target announced that its Chief Innovation and Strategy Officer would be leaving the company, which is only the latest in a rash of leadership exits to hit the organization over the last year-and-a-half.  Moreover, this news came on the heels of Target’s announcement that they would be scrapping the two innovation initiatives their company was pursuing:

  1. The “Store of the Future,” a highly automated warehouse with a smaller storefront that would allow customers to select items and “shop” virtually while still picking up the iteams that day.
  2. Project Goldfish, a software platform for an open marketplace within Target where other retailers could sell their goods within the Target ecosphere.

In response to these events, Target CEO was quoted by Fortune stating “We made a tough choice. Our focus on innovation has to be something we can realize over the next three or four years inside the core business.”

Uh-oh.

explorer-sinking-2That response should have your sinking ship alarm blasting.  Scrapping long-term innovation for short-term goals is sometimes necessary, but when a company is facing three straight quarters of sales declines, “cutting costs and focusing on our core business” is not a solution. If your house is dusty you need to tidy-up. If your house is on fire you need more drastic action.

Perhaps the two initiatives were no longer offering promising growth models.  After all, in innovation it is just as important to know when to quit as it is to know when to start.  But something about the company’s actions appear fishy.  Neither initiatives seemed that far off from being implemented in three to four years.  As the saying goes “people over-estimate what they can accomplish in one year, but under estimate what can be done in three to five.” So unless the projects were clearly dead on arrival why not launch them?

Maybe they saw the light and realized that innovation cannot be developed in small independent think-tanks and instead must be spread through the organization culturally?

Yeah, right.

Instead, it appears that the company is pursuing what I call the “Blockbuster Strategy.” Instead of leading disruption through developing better products and services, focus on cutting costs and if you must develop half-hearted knock-offs of your up-and-coming competition.  When Netflix arrived, people for the first time were able to rent movies without driving to the store, without the lines, without the late fees, and without the worry that the newest hot release would be sold out.  This functionality was a step change in how people consumed video, and blockbuster refused to adapt. The costs associated with pivoting a large company like blockbuster (including removing the dreaded late fees) would have caused short term losses.  As a result, Blockbuster’s leadership was rotated out and replaced with members that would stay the course and focus on cutting costs. As you well know, this strategy did not work favorably.

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Target cannot compete with Walmart and Amazon on price. Low-price leadership is a cut-throat game that naturally benefits the incumbent business.  Further, Target cannot compete with Amazon online (Walmart may have found a solution, but that is for another day).  This might work for Target’s store brands and exclusive product lines, but why would I buy something online from Target that I can get from Amazon who already has my account information and free 2-day shipping? The strategy of cutting costs to lower prices and develop a better online shopping supply-chain may provide a small boost in the short term, but it will clearly be at the cost of mortgaging the company’s future.

The only solution for Target is drastic innovation.  Take a look at some of innovation Amazon has been testing with a No Lines, No Checkout grocery store “Amazon Go” and the dash button subscription plan.  There is room to innovate in the big-box store space, Target just needs to be brave enough to take it on.

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