Target Corp. may be a big fish in the brick-and-mortar pond, but it is a relative minnow in the digital waters. It hopes to change that perception during this holiday season.
The Minneapolis-based retailer announced this week that it will offer free shipping for all items ordered on its website, Target.com, through Dec. 20. The move, a first for Target, is designed to elevate it beyond its main traditional competitor, Wal-Mart Stores Inc., and into the realm of conversation that includes Amazon.com, the leading online retailer.
Target said in a statement that it offers more than 65,000 items on its website that are available for store pickup. About 80 percent of orders can be fulfilled within one hour. It is unclear if the number of items will increase as the holidays draw nearer. Target did not make any of its supply chain executives available for comment.
The company operates 37 distribution centers in the U.S. and three in Canada, and it remains to be seen how its DCs will handle what is bound to be a significant increase in pre-holiday traffic driven by the free-shipping guarantee. According to a survey of nearly 6,000 online consumers conducted earlier this year by research firm ComScore, 81 percent cited "free-shipping options" as the most important feature influencing them at the all-important checkout step. About 58 percent said they would increase the size of their orders, if necessary, to qualify for free shipping, according to the survey.
Tom Racciatti, a Minneapolis-based supply chain expert at West Monroe Partners, a consulting firm, said Target's efforts are aimed at demonstrating that it can compete with Amazon for online dominance. Seattle-based Amazon offers unlimited two-day shipping through is "Prime" service, which costs $99 a year. Racciatti added that Target should be prepared to offer free shipping of online orders year-round if the pre-holiday program proves successful. Racciati said he has not worked with Target on the ramp-up.
Target's efforts come as it works to repair the public's trust following a disastrous data breach during the run-up to last year's holidays, which resulted in as many as 110 million customers having their card data or personal information stolen. The incident cost Target $110 million after subtracting a $38 million insurance payment. The customer backlash also crimped Target's business. Its sales in the second quarter rose 0.7 percent from the same period in 2013.
Target will also be going head-to-head with a more digitally retooled Wal-Mart. The Bentonville, Ark.-based behemoth will spend $1 billion on e-commerce initiatives in its current 2015 fiscal year, which ends January 30. It will spend a $1.6 billion on e-commerce programs in its 2016 fiscal year. That represents a little less than one-quarter of its planned capital expenditures for the 2016 year.
In addition, more than 80 of Wal-Mart's stores will serve as de facto distribution centers that will be used to ship holiday online orders directly to customers. That is more than twice the number of stores Wal-Mart used last year for that purpose, according to Ravi Jariwala, a Wal-Mart spokesman.
Wal-Mart offers free shipping for online orders of $50 or more, Jariwala said. Free shipping applies to 99 percent of the items on Wal-Mart's site, he added. He declined to disclose the order volumes on the site.