Target Takes a Big Step to Improve Delivery

By Markets Fool.com

In its battle with Amazon.com(NASDAQ: AMZN),Target (NYSE: TGT) has fallen behind when it comes to delivering digital orders.

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It used to be enough that the physical store offered the advantage of immediacy. You can visit a Target and leave with your purchase right away. That's in theory better than even next-day delivery from Amazon -- or at least it used to be -- but now consumers demand more.

The public wants special orders, online-only items, and sometimes just regular purchases delivered to their door. Making that happen for a large retailer like Target requires big changes to how merchandise moves through the chain. That's because physical retailers have built their expertise on getting a pallet of TVs or a container of lamps to the right store -- not sending a single one of either straight to your doorstep.

Amazon, on the other hand, built its system around being able to offer two-day delivery for millions of items. The company has special deals with the United States Postal Service (USPS) to offer Sunday delivery and it has its own fleet of planes to move goods around. The online retailer even has predictive software that lets the company know what customers may want before they order it.

It's an impressive system that has erased the advantage Target has simply by being a store. That's something the physical chain has been working on, and it has made another step forward in putting the right personnel in place to, if not beat Amazon, at least match it in the delivery game.

Target has physical stores, but it needs to up its delivery game. Image source: Target.

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What is Target doing?

In February, Target took its first major step to build a delivery and logistics system to match Amazon's when it hired Arthur Valdez as executive vice president and chief supply chain and logistics officer. The experienced executive joined the retailer from Amazon, where he spent 16 years in various leadership positions across the company's global and domestic supply chain, including in transportation, fulfillment, and logistics.

That move prompted a lawsuit.Amazon sued Valdez to stop him from starting his new job with the discount retailer, claiming a non-compete agreement he signed precluded him from working for any direct rival for 18 months. "Mr. Valdez cannot lead Target's supply chain operations without referencing confidential information learned and developed by him at Amazon," the company said in its suit, which does not name Target

That lawsuit did not stop Valdez from starting at Target in March, The Wall Street Journal reported, and the retailer followed up his hiring in late July by adding another key executive, former Apple Director of Logistics and Supply Chain Ben Cook, to its team as senior vice president of global logistics, inventory allocation, and replenishment.

Reporting to Valdez, Cook will "lead the optimization of Target's inbound and outbound supply chain processes, including carrier transportation and last-mile delivery," according to Target. He will also oversee inventory allocation and replenishment, merchandise planning operations, and global logistics.

"Our guests expect us to deliver product quickly and reliably, and that means we need a supply chain that's increasingly fast and precise," says Valdez. "Ben's expertise and proven track record in cutting cost and reducing complexity in the name of speed will be an incredible asset to our team. We believe he's the right addition to the work we're doing to strengthen Target's supply chain so we can offer an even faster and simpler guest experience."

Stepping up the competition

Amazon has a big lead when it comes to supply chain and delivery. Target may now have access to some of the thinking behind that through Valdez (which is why there is a lawsuit), but knowing and doing are two very different things. Adding Cook gives the company another top executive coming from a company with experience in blending storewide delivery and individual order fulfillment.

Target has what appears to be the right team in place with Valdez and Cook. That may accelerate its improvement, but a lot of work needs to be done. Amazon has made two-day delivery the standard (including it free for Prime members, who pay $99 a year) and Target's free shipping offer, which kicks in when a customer spends $25, still only promises shipments arriving in three to five business days.

These are major hires, but Valdez and Cook have a huge mountain to climb before they can even approach offering what has become Amazon's minimal standard. That will take time, but putting the right people in place makes eventually getting there a possibility.

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Daniel Kline owns shares of AAPL. He finds the idea of waiting three to five business days for delivery unbearable. The Motley Fool owns shares of and recommends AMZN and AAPL. The Motley Fool has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL.

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