Target is the top retail digital marketer, so why is it struggling?

According to Internet Retailer’s newly released The Best Digital Marketers in E-Commerce report, Target is the most effective marketer in online retail.

The report looks at how well retailers perform across multiple marketing channels, including email, paid and natural search, and social, and found that Target “takes advantage of many of the newer online marketing tools available to web merchants, such as dynamic ads and tools that show on-the-go shoppers what inventory is available at their local store.”

It has also developed a large repository of first-party data culled from a variety of sources, including its stores, website and apps, and branded credit card. This data is used to target customers across channels and “get greater returns than targeting audiences that rely on aggregated information to find signals of intent,” according to Target SVP of Marketing Kristi Argyilan.

Organizationally, Target says that it has broken down the silos between the teams that manage its various digital marketing channels.

So why is the retailer struggling overall?

Shares of the company’s stock recently touched two and a half-year lows after Target missed earnings expectations and provided weak guidance for 2017.

While the company saw “very strong digital growth” of 34% in the fourth quarter of 2016, there was “unexpected softness in…stores” which resulted in a higher-than-expected 1.5% decline in same-store sales.

To address what Target CEO Brian Cornell calls a “new era of retailing,” the company plans to invest billions of dollars in initiatives such as store remodeling, the opening of small format stores and “aggressive promotional activities” designed to help it better compete with Amazon and Walmart.

Cutting prices might seem like a necessary strategy in today’s environment – Cornell says it “will best position Target for continued success over the long term” – but there’s plenty of skepticism that it will actually pay off for Target, as evidenced by investors’ response to the announcement.

In effect, it would appear that while Target has developed an effective digital marketing engine, growth in online sales hasn’t been enough to offset offline declines, competition from Amazon and Walmart has forced the company to cut into margins, and, perhaps most importantly, the digital marketing engine doesn’t seem to be helping drive customers to stores effectively enough.

The challenge for Target at this point is that the company can’t and won’t favor online sales over in-store sales. As GuruFocus’ Sangara Narayanan observes:

“The problem is, nobody has perfected [the model] where online and in-store sales perfectly complement each other. Rising online sales can easily cannibalize in-store sales for big-box retailers, which will squeeze the margins even further. The ever-intensifying competitive nature of the market is only making things harder for big-box retailers, and 2017 may be the year where the stronger ones come out of the shadows.”

Will Target emerge as one of the stronger retailers? If it doesn’t, despite its status as the most effective marketer in online retail, it will suggest that the “seismic shift” Target’s Cornell sees will leave more destruction in its wake than even big retail bears have predicted.

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