Target (NYSE:TGT) has been slow to adapt its business to an online-first mentality.
The retailer has steadily improved its digital business, but it has lagged behind when it comes to shipping. Even when the company has offered free shipping, which it did over the holidays and for the recent back-to-school season, it did so using unfavorable terms.
Instead of the two-day deal that's become the standard for online retailers, Target offers three-to-five-day shipping. Customers can get faster delivery for a price, but that's probably not very enticing when Amazon (NASDAQ:AMZN) offers two-day shipping on all orders over a certain dollar value, and includes it for free for all members of its $99 Prime service.
The online retailer has essentially set the standard, and anything less than two-day delivery seems hopelessly outdated. People will wait 48 hours if the price is right, but anything longer than that makes it silly to not just go to Amazon (or not make the purchase at all).
Target is not blind to this difference and has begun testing faster delivery methods that would match what its pure-digital rivals offer, according to GeekWire.
What is Target doing?
Currently, Target gives online customers a delivery window for when their order will arrive. It is now testing a program called "Available to Promise," according to online technology-news site, which would give users a specific delivery day. The new offer would also cut shipping times from three to five days (or longer in some cases) to a range of two to three.
"This service is designed to offer guests greater specificity on when they can expect to receive their order," a spokeswoman told GeekWire.
That's a decided improvement, but it still makes you question why the company would set out to offer improved delivery that's still inferior to Amazon. It may also suggest just how big of a problem offering two-day delivery is to solve.
This is not so easy
While Target has a huge network of stores and distribution centers, those facilities are geared to supply retail locations, not ship individual orders. As part of its online improvement efforts, the company has begun shipping from stores direct to customers. That's a step in the right direction, but modifying its processes to improve delivery times is a huge investment of time and money.
Fixing delivery is key to the company's growth, because customers who shop both in its stores and on its website purchase three times as often as a person who shops only in the store, Target CEO Brian Cornell said in a recent webcast. Those customers, he explained, generate 3.2 times more sales and 2.6 times higher margins.
To increase that customer base, Target needs to at least match Amazon's shipping, or routinely have better prices. Since lowering prices in an already highly competitive market seems very unlikely, the brick and mortar retailer simply needs to fix its delivery windows.
A positive direction
Target has steadily improved its digital efforts over the past year, and this is another positive step in the right direction. It's important for the company to offer a comparable experience to its pure-digital rivals.
If it does that, it should be able to leverage its network of stores as an advantage over rivals that lack a physical presence. If Target could equal Amazon in shipping, it might actually become the first choice of customers who want the convenience of making returns in physical stores. That's something Amazon can't offer, and it's an edge Target could do more to exploit.
The physical retailer faces a big challenge in reengineering its resources to facilitate shipping individual orders, but it at least has significant assets to task to the problem. This seems like a solvable problem for Target, and one that it needs to solve in order to compete or even pull ahead of Amazon.
Daniel Kline has no position in any stocks mentioned. He shops at Target and Amazon almost equally. The Motley Fool owns and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.