What New Target Supply Chain Chief Needs to Do

Big-box retailer Target Corp. (NYSE: TGT) announced Monday that it has appointed Arthur Valdez as executive vice-president, chief supply chain and logistics officer. Valdez joins Target after a 16-year career at Amazon.com Inc. (NASDAQ: AMZN) where he was most recently the e-commerce giant’s vice president of operations who was focused on expanding Amazon’s international supply chain.

Besides replacing Target’s chief supply chain officer who left the company last June, Target also appears to want to link its vast network of stores more closely to its online presence. Target COO John Mulligan said:

While we’ve made significant progress in improving our operations, Target’s growth hinges on our ability to enhance the fundamental aspects of our business, starting with the supply chain. Arthur’s leadership and experience will be a tremendous asset as we continue to drive improvements in end-to-end processes including leveraging our almost 1,800 stores to deliver a seamless experience for our guests.

Target’s fourth-quarter revenues included more than $1 billion in online sales, about 5% of the company’s total sales of $21.6 billion. That’s the largest amount in the 17 years that Target has operated an e-commerce business. Not only that, online sales contributed two-thirds of the company’s 1.9% gain in same-store sales in the quarter, according to The Wall Street Journal.
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Target is one of only four traditional retailers to make the list of the top 50 U.S. digital properties in December, according to a ranking by comScore. Target websites had more than 35 million unique visitors in the month to rank 26th, behind Wal-Mart (ranked 10th with more than 56 million unique visitors), but ahead of Best Buy (ranked 39th with nearly 27 million visitors) and Sears (ranked 44th with more than 23 million visitors).

Amazon nabbed nearly 119 million unique visitors in December, the fifth highest of any website, more than three times the Target total. What Target wants to do is convert these visitors into buyers and to do that they need to offer them essentially same-day pickup at the nearest Target store. To do that means that inventories have to grow, but the growth must be measured, not willy-nilly. Valdez will have to figure out how to do that without raising inventory costs through the roof. It’s a tricky thing for sure.

Target stock traded up about 0.8% in the early afternoon Monday, at $79.07 in a 52-week range of $66.46 to $85.81. The consensus price target on the stock is $83.24.