By Sara Castellanos
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 23, 2020).
Michael McNamara knew Target Corp. had challenges when he was
hired as chief information officer in 2015. The retailer, knocked
around by public failures including a December 2013 data breach,
was "lacking confidence" and "down on its heels," he recalled.
While rival Amazon.com Inc. was amassing e-commerce market
share, Target's information-technology staffers -- mostly
outsourced -- were focused on traditional IT tasks such as managing
hardware and software vendors. Technology staff spent a lot of time
on noncritical work, the CIO said.
"IT projects were always late and cost too much, and they were
never right," said Mr. McNamara, who before joining Target spent
about 17 years at U.K.-based grocery giant Tesco PLC.
Mr. McNamara's answer to Target's troubles with software was
even more software -- but with major changes.
The CIO began an 18-month effort to bring software development
in-house and focus on technology projects that add competitive
advantage or drive revenue growth, such as those related to online
shopping and same-day delivery or pickup.
Today, Minneapolis-based Target has about 4,000 IT employees,
more than 80% of whom are full-time software engineers and
developers. Before Mr. McNamara took over, the company had about
10,000 IT workers.
To slim down the IT department, the company chose not to renew
outsourced staffers' contracts. At the same time, it hired more
than 1,000 in-house technologists. The retailer can do more with
fewer employees, Mr. McNamara said, because senior management
prioritizes only technology initiatives that have a direct impact
on business objectives such as revenue growth.
The strategy has helped results. Sales from stores and digital
channels operating for at least 12 months rose 4.5% in the quarter
ended Nov. 2 from a year earlier, marking over two years of
consecutive quarterly sales growth. E-commerce sales rose 31% in
the period, with most of that growth coming from same-day delivery
or pickup, the company said. Since November 2015, Target shares
have increased more than 50%.
However, recent holiday sales were sluggish. The company last
week warned that growth for its full fiscal fourth quarter, which
includes January, would likely fall short of the 3% to 4% gain it
previously predicted.
To be sure, Target's financial performance isn't solely tied to
its technology efforts. The company has refurbished stores over the
past few years and it has debuted new brands that are attracting
customers, said Neil Saunders, a managing director with GlobalData
PLC. "The most important thing is to have products people want to
buy," Mr. Saunders said.
But Target's technology efforts have been critical in making
shopping easier and more appealing -- whether online or in store,
he said. Those efforts require a degree of nimbleness and the
ability to respond to changing consumer trends quickly. "Having an
in-house team allows you to do that," Mr. Saunders said.
Target hasn't yet made market research firm eMarketer's list of
the top 10 U.S. companies ranked by retail e-commerce sales.
However, this year it will likely overtake shopping channel QVC as
the nation's 10th largest e-commerce retailer based on its growth
trajectory, eMarketer said. QVC's retail e-commerce sales in 2019
amounted to an estimated $7.10 billion, or 1.2% of total U.S.
retail e-commerce sales, according to eMarketer. Amazon.com ranked
first with an estimated $222 billion in retail e-commerce sales, or
37.6% of the total.
The in-house IT team was critical in integrating the technology
systems of Target and Shipt Inc., a grocery delivery startup the
company agreed to acquire in 2017 for $550 million, Mr. McNamara
said. Same-day delivery options, including Shipt and "buy online
pick up in store" services, accounted for 80% of Target's digital
growth in the company's most recent quarter.
Other companies such as Dick's Sporting Goods Inc., Lowe's Cos.
and Capital One Financial Corp. have also "insourced" IT
talent.
In 2015, the prevailing sentiment on Wall Street was that Target
was behind the curve in responding to the e-commerce threat and
there was little it could do to fend off its loss of market share
to Amazon, said John Zolidis, president and founder of investment
advisory firm Quo Vadis Capital Inc.
During Mr. McNamara's first Cyber Monday at Target in November
2015, online shopping's biggest event of the year, its website
crashed and the IT team had to halt some of its online traffic
because its servers couldn't handle the capacity.
"Retail was being disrupted and it was clear that our business
was moving faster than we were in the tech team," said Nancy King,
now vice president of merchandising and marketing technology at
Target.
To help reduce the chances of another online shopping outage,
Mr. McNamara in his first year supervised the migration of some IT
systems from physical servers to the cloud.
He also began to phase out IT contractors in favor of in-house
engineers. But persuading top talent to move from places like
California to Minnesota posed a challenge, especially because
Target's reputation for technology was "very poor," Mr. McNamara
said. "It was about selling people on the future, not the present,"
he added.
He described the company to potential recruits as a place where
software engineers could learn new skills and tackle interesting,
worthwhile problems that would translate into tangible impacts on
the business.
Existing employees and new recruits were schooled on the
principles of agile software development, a method of project
management associated with Silicon Valley companies that is
increasingly being used by corporate IT departments. Agile involves
employees from different departments working together closely under
short timelines, changing course often -- collaboration that speeds
up product development.
In 2017, a handful of software engineers developed a prototype
of a mobile app for in-store employees in six weeks, something that
would have traditionally taken nine months and involved dozens of
staffers. The app, called Save the Sale, allowed employees to order
inventory for customers that wasn't stocked in the store.
Write to Sara Castellanos at sara.castellanos@wsj.com
(END) Dow Jones Newswires
January 23, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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