Target still trying to catch up after mistaken Web strategy

Cyber Monday turned out to be another opportunity for Target to remind shoppers that it's not Amazon.com.

Target marked down everything 15 percent for the biggest online shopping day of the year and then saw its Target.com website buckle under the strain. "Please hold tight," said an error message that greeted shoppers. "So sorry, but high traffic's causing delays …"

This promptly made the news, of course. Most accounts suggested it was just a little ­hiccup in the morning, although on social media the complaining went on all day.

In some ways, a balky website shouldn't have even been news. It happens, although it didn't to Amazon.com, the e-commerce giant.

This little episode may yet turn out be a rounding error in Target's annual results. Yet once again it raised a question that's long intrigued me, and that's how different the landscape would look today had Target not outsourced much of its website for 10 years to Amazon.com.

That decision now looks like a mistake, as Target tries to close some of the competitive gap with its toughest ­competitor.

That wouldn't have been obvious at the time, of course. Anyone looking down at the world from Target's Minneapolis headquarters in 2000 could see that buying things over the Internet was still mostly a novelty — just 1 percent of total retail sales in the fourth quarter of 2000.

By then the dot com bubble had burst, too, and such e-commerce companies as living.com and pets.com were going out of business. Amazon.com obviously survived, but the price of its once highflying stock had rolled off the table.

It felt that year like the entire economy had awakened after a weekend bender and was trying to somehow forget about the whole embarrassing episode.

But not everyone's thinking had changed. In 2000, the Silicon Valley management consultant and author Geoffrey Moore released a book meant for the ­managers of more traditional businesses, called "Living on the Fault Line."

It should've been recommended reading at Target headquarters.

Moore insisted that Old Economy executives still hadn't fully realized just how much they had to fear from changes wrought by the Internet.

One way he framed his argument was around the idea that the only things worth focusing on are the core activities that make a company more competitive over the long term. That's the way successful technology executives think.

The activities that aren't core he called "context." Companies spend enormous amounts of time and money on these context activities, but customers don't care. There's nothing to be gained by doing them better than anybody else.

That's what you outsource, or even toss overboard ­altogether.

The core of Target was doing more than fine back in 2001, of course. It still owned the Marshall Field's and Mervyn's department stores then, but its Target stores were doing great, with same-store sales up 4.1 percent in 2001. The company planned to keep putting its capital into building more.

Anything the company did to make customers prefer shopping at its stores over Wal-Mart or Kohl's was also a core activity. So was picking the right toys to put on display or having the right features on a Target credit card.

By signing with Amazon.com, a deal announced in September 2001, Target outsourced activities it didn't know how to do as well as Amazon.com. Seattle-based Amazon.com had figured out how to make it easy for a customer to order over the Internet. Amazon.com knew how to efficiently pack up and ship the products.

What Amazon.com was now doing was a big part of the online customer's experience with Target. Did the website work? Was it easy to order? Did the right thing show up? That was all ­Amazon.com.

And that was the mistake. This outsourced work wasn't context. It was core.

The relationship with Amazon.com lasted for 10 years, even though other big companies working with Amazon.com quickly learned that their new partner was far more interested in competing with them than in helping. An exclusive toy retailing relationship with Toys "R" Us even ended up in court.

By the time Target announced it was taking back its website in 2009, it had long since become obvious ­Amazon.com was a threat.

Target launched its own site just before Labor Day in 2011 and promptly suffered embarrassing outages. The company has made online a priority. A few years ago, stores got by far most of the budget, but about half the $2.1 billion capital budget for this year is earmarked for technology investments.

Results, however, have yet to meet the company's hopes. Growth in the digital channel was a big part of Target's plan for this year, looking for 40 percent sales growth. In the quarter that was just announced, however, digital channel sales grew by only half that much.

Meanwhile, in Amazon.com's North American electronics and other general merchandise category — the part that most closely competes with Target.com — sales in the most recent quarter increased 35 percent.

Growth in this segment for Amazon.com is still ­accelerating.

What's making that kind of growth possible today is more than low prices, it's what Amazon.com learned how to do to make the customer experience so painless, from product recommendations up through recent innovations like one-hour delivery.

These are things that people working for Target should have spent those ten years learning to efficiently and reliably give its customers, reporting to a Target CEO who cared a lot about making sure the work got done.

Doing that work in-house likely would have been more expensive than outsourcing, taking some of the budget that went to new, renovated stores, but also well worth it.

It should have been enough to get the company through Cyber Monday without having to ask its customers to "please hold tight."

lee.schafer@startribune.com • 612-673-4302