This 1 Number Explains Target’s Brilliant Strategy to Beat Amazon

Target and Amazon are competitors in the sense that they both sell a wide range of things like clothes, electronics, home decor, and even groceries. Despite that similarity, the two are very different companies and have very different strategies

Target is a much more traditional retailer compared with Amazon. For example, the majority of Target’s 400,000 employees work in one of its 1,931 stores where they interact with customers on a daily basis. The majority of Amazon’s 1.6 million employees work in warehouses and fulfillment centers, or drive delivery vans.

That’s an important distinction: Target is a retailer based on physical stores where customers go shopping. Amazon is a website where people shop from their iPhone or laptop, and a network of distribution centers that deliver orders to customers’ homes–usually within a few days. 

To be fair, Amazon has a few stores, but no one would argue that they are its primary business. They aren’t. Amazon’s primary business is mostly as an online marketplace and distribution network for third-party sellers as well as an increasing number of Amazon house brands.

Target sells things online, of course, but its primary way of interacting with customers is still through its physical retail stores. In fact, its entire online business is built not on warehouses, but on top of those stores. Target is using its most valuable assets, its stores, and its people, to serve its customers regardless of how they want to shop.

According to Target’s 2021 full-year earnings report, which the company released last month, more than 95 percent of all of its orders, both digital and physical, were fulfilled by stores. That number highlights just how effective the strategy really is.

For example, even when you place an order online, it’s most likely to be handled by a retail store, not a fulfillment center. In effect, Target has leveraged its stores as a massive fulfillment network. 

That savvy plan has helped it not only compete against much larger competitors like Amazon and Walmart but also helped the company grow its revenue by 35 percent since before the pandemic to over $105 billion. That’s still a long way from Amazon’s $470 billion in 2021. On the other hand, when you compare the rate of growth in online sales over the past two years, Target has far outpaced Amazon, and it isn’t even close.

To be fair, Target was starting from almost nothing, compared with Amazon, which was already, you know, the world’s largest online retailer. When you’re that large, it’s hard to continue to grow at the same pace. Target, on the other hand, had a lot of room to grow. 

Even back in 2017, long before anyone had heard of COVID-19, the company spent $500 million on delivery service Shipt. As the pandemic began to surge across the country, the company spent millions more to handle online orders, as well as in-store and curbside pickup.

That doesn’t guarantee success, however, and Target could have done what many other businesses would have–look at what your competition is doing and just copy that. It’s a pretty common tactic.

Except, three-quarters of Americans live within 10 miles of one of those stores. That means there’s a fulfillment center and pickup location within a short drive of the vast majority of its customers. Why wouldn’t you want to take advantage of that?

That’s exactly what Target did. Instead of trying to shift to a different strategy to compete with Amazon, the company has doubled down on those assets and leveraged them to serve customers even as their needs have changed. It’s working. 

The shift to online purchases helped the company grow far more than expected at a time when almost no one know what to expect. Last year alone, the company’s revenue grew 12.7 percent. That’s after an even bigger boost in 2020. 

For comparison, in 2019–which might be considered a normal year–the company’s comparable sales only grew 3.9 percent. While 2020 was an outlier that forced a major change to the way Target, and every company, does business, that change seems to be sticking around, at least for now. No one could have seen the last two years coming, but the company’s response is a stroke of genius. 

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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