Newsletter #20: Happy Tenth Anniversary, Target "Stores as Hubs" Initiative!

This week marks the tenth anniversary of the beginning of the Target “Stores as Hubs” initiative, or as it was originally titled, the Supply Chain Transformation.  The purpose of this body of work, which I was honored to lead, was to reinvent how the network of Target’s owned physical assets (stores, distribution centers, and fulfillment centers at the time) could be used to better compete in an omnichannel world.  The original concept deck that I shared with then CFO John Mulligan in late 2014, envisioned repurposing store back rooms for same-day online fulfillment, while harnessing trade-offs in the P/L to optimize for instock availability, markdown avoidance, and speed of delivery.

We had a small but mighty team at the outset, but we knew we were onto something big.  As an amateur historian aware of Target / Dayton’s history as the inventor of both the indoor shopping mall and discount retail, I believed the Supply Chain Transformation team could also achieve something historic.  So, we convened our team that first morning in the Target history museum to take the attached picture - to motivate us through the hard work ahead.

As the team present that day (and the dozens of others that would soon be added to the team) could attest, I regularly referenced three concepts as guiding lights for our work:

• The first was from the book The Medici Effect by Frans Johansson, in which he stated “how you can rapidly combine insights and ideas, often wildly disparate, to create surprising and unique breakthroughs” at “the Intersection” would drive outsized success. The Medici Effect is named after the dynastic Medici banking family from Florence, which bankrolled experts from various backgrounds to come to Florence and interact with and inspire each other.   The result of those interactions?  The Renaissance.
• The second was from the Nassim Taleb book AntiFragile, which put forth ways to gain from disorder and chaos while being protected from fragility and adverse events. Just as the human body gets stronger from lifting weights and being exposed to pathogens, or the commercial aviation industry improves after accidents, shouldn’t an omnichannel supply chain, if structured correctly, benefit from variability and forecast error?
• And the third was from the book Endurance by Alfred Lansing, which described the ill-fated Imperial Trans-Antarctic Expedition led by Ernest Shackleton.  Despite being shipwrecked on the Antarctic ice sheet for over two years, Shackleton managed to get the entire crew back home safely.  How?  It involved endurance and resilience for sure; but also great teamwork and a variety of experts from different backgrounds who could think creatively and holistically together, about the myriad problems they faced every day in order to survive.

How did we implement those concepts?  First, we purposely hired a team with diverse areas of expertise and assigned them into sprint teams so that we could work the problems holistically and innovatively.  Second, we broke the problem down into bite-sized pieces to solve, in order to keep from the challenge getting overwhelming for any one person at any point in time.  Third, we kept in mind the idea that variability was our friend – not our enemy -  if we could harness it correctly across our future-state “Stores as Hubs” network.  And fourth, since we were threatening the status quo, we had to remain resilient and united when at times it would become politically charged.

The fact that the Stores as Hubs initiative is still regularly called upon by current Target leadership as a key pillar of its path forward is very satisfying for all of us who were there at the outset.  In 2021, CEO Brian Cornell cited in their virtual investor day that the decisions made over the prior five years on the Stores as Hubs initiative drove subsequent outperformance: “far from being a fluke, this performance is further proof that we built a business model that is working as intended, one that puts Target in a category of its own.”  And Target’s current Chief Supply Chain Officer, Gretchen McCarthy, recently stated “we realized [in 2015] that our stores were a terrific opportunity for us to drive more efficient operations in the fulfillment space, as 75% of Americans live within 10 miles of a Target store.” 

I continue to maintain pride in the work of that early team, the achievements we made over the next several years, and its continued legacy today.  Additionally, the concepts which guided the initial Supply Chain Transformation ideation, and the subsequent lessons learned, are still employed every single day at Ocampo Capital as we support the growth of our portfolio companies.  Our goal is to help make our portfolio companies the next historically significant success stories in the consumer space.