Target's E-Commerce Strategy Through the Business Lifecycle

Lifecycle of Idea

The concept of the business lifecycle reflects the natural stages that all businesses go through, from the moment an idea is developed into a business until the moment the business wraps up. For some businesses, the stages can last a long time, but for others the stages are relatively short and the progression through them can be quite fast. In other cases, a business hits a point of maturity, begins to decline, and is then re-invented, starting the business lifecycle over again.

The five stages of the business lifecycle are development, startup, growth and establishment, expansion, and finally the maturity and possible exit stage (Petch, 2016). Target's business is in the maturity stage, but the company is highly successful as a competitor in the big-box retail space and is therefore not at all considering exit. In BCG matrix terms, it would be considered a cash cow — a large, stable, and consistently profitable business. It is precisely because of that maturity that Target is seeking to revamp and enhance its digital presence. The company needs to spur growth in an industry that is not experiencing much of it. This means that Target must not only defend its existing market share, but also win share from major competitors like Walmart and Amazon, and capture business from smaller players as well.

The e-commerce side of retail remains a growing business. This segment is growing at 15% per year, which means that e-commerce exists in the expansion stage of growth rather than the maturity stage (Ali, 2019). It is long past the startup stage, which was roughly twenty years ago, but its growth rate is far higher than that of the broader retail industry or the U.S. economy as a whole, both of which are more firmly in the maturity phase. This expansion stage is precisely why Target is aiming to enhance its digital business — it is one of the areas where growth potential is far stronger than in the rest of its operations.

The expansion stage is characterized by a situation in which the business is firmly established — which is the case for e-commerce in general — but firms in the industry seek to capitalize on that stability by broadening their horizons. For Target, that is exactly what this strategy is about. E-commerce is experiencing continual evolution in terms of both technology and consumer preferences, and these changes are a large part of what is driving the sector forward. For retailers, staying on top of the latest e-commerce trends is critical to matching the growth of the industry as a whole; failure to remain current will likely result in a company falling behind competitors that are leading the way in innovating new strategies and adopting new ideas.

Continued success during the expansion stage relies on the business having a plan to expand, but doing so with a degree of caution. Expanding too quickly or too rashly, without a coherent strategy, is likely to result in difficulties or outright failure — as was the case for Target when it expanded into Canada. The new enhanced digital strategy for Target is rooted in leveraging the company's existing brand strength, which generates traffic and brings in loyal customers. With a better e-commerce experience on both web and mobile, Target hopes to capture a greater share of consumer spending and ideally attract new customers as well. This is what the expansion stage is about: earning more from existing customers and attracting new ones, especially those who have positive associations with the brand but might otherwise patronize competitors with a stronger digital presence.

Profit Generation

There are two ways for a business to increase its profits: earn more revenue or reduce the costs of doing business. Ideally, a new business initiative will allow a company to do both simultaneously. This is especially true of a venture in the expansion stage, because the company has a stable business and is unlikely to pursue strategies that are too risky, yet it still wants to capitalize on the growth opportunities that exist in the marketplace.

The enhanced digital presence should generate new revenues for Target. The company has a strong brand, but so do its competitors, and major rivals like Walmart and Amazon have much larger e-commerce businesses. In a sense, Target is playing catch-up, working to make its digital sales engine as sophisticated and successful as its offline business. The company's commitment to e-commerce is evidenced by consistent strong performance in this channel over the past five years (Ali, 2019).

This digital growth far outpaces what the company is doing in its physical stores, and it also exceeds the growth rate of the e-commerce industry as a whole. This superior performance illustrates that Target is finding its stride in digital retail and is now in a position to accelerate that momentum with its enhanced digital strategy. By continuing to tap into the stronger growth potential that e-commerce offers, Target can sustain digital as the primary engine of its overall corporate growth.

The other side of increasing profits is improving margins. The first assumption is that e-commerce does not erode Target's pricing power. This assumption is potentially false — consumers have demonstrated a willingness to pay more for the convenience of shopping digitally. While Target's major competitors are dominant e-commerce players, smaller companies have a more difficult time competing because they lack the brand recognition and traffic that generates top search results. E-commerce tends to favor larger businesses, which helps reduce competitive pressure and potentially allows Target to enjoy more favorable pricing.

Even if Target does not benefit from improved pricing power, e-commerce is a more efficient business model when operated at scale. There are higher costs associated with shipping, and consumers often expect major vendors to absorb these costs. However, there are also significant cost savings from the reduced physical infrastructure that an e-commerce business requires, relative to a bricks-and-mortar store. Offline, Target must maintain stores in areas convenient to consumers, which often command premium real estate. With its digital business, a handful of strategically placed warehouses nationwide can suffice, and these can be located in areas with much lower land costs because consumers never visit them directly.

Furthermore, the digital model benefits heavily from economies of scale. It is a more efficient business overall because a few large warehouses can process a much larger volume of goods than a traditional retail store, creating efficiencies in ordering, inventory handling, and shipping. Target does not necessarily even need to carry a larger overall inventory to support this model.

Thus, there are significant cost savings associated with economies of scale and reduced physical infrastructure when expanding the e-commerce business. For Target, digital commerce is not only growing at a much faster rate than its physical stores, but it also carries higher margins because of its more efficient cost structure. This initiative therefore works on both sides of the profit equation, making Target a more profitable company overall.