Dive Brief:

• A new inventory control system will help Target better position inventory within its network to enable more streamlined backroom operations and keep store inventory levels low without jeopardizing in-stock status, COO John Mulligan explained on the retailer's third-quarter earnings call Wednesday.
• "The benefits of this new system include lower backroom inventory levels, better on-shelf availability of our store inventory and a higher percentage of replenished items that flow straight to the shelf," Mulligan said.
• After years of development, the system is now active for 15% of Target's products, representing 20% to 30% of total replenishment, Mulligan explained, adding the affected items show less frequent stockouts and lower backroom quantities than those not yet in the system.

Dive Insight:

In addition to the inventory planning software, Target is in the midst of rolling out various automated technologies to some of its distribution centers, designed to replenish store inventory in such a way that backroom stock levels can stay low and less labor is needed upon receiving shipments in store.

"This new technology is focused on moving sortation labor out of store backrooms, organizing shipments to minimize the number of footsteps needed to restock our sales floors, and reducing the amount of excess inventory in our store backrooms," Mulligan said of the distribution center technology.

Shipping pre-sorted product to stores, only shipping what is needed and getting product onto the sales floor as quickly as possible, will not only keep spaces clear for fulfillment work, but it will also boost sales by reducing stockouts, said Mulligan.

"Our teams are telling us that their backrooms have never been so well organized going into a holiday season, something which should translate into strong execution during our busiest time of the year," the COO said.

Efficient use of space in the back of the house is a good idea for any retailer, but Target has a unique incentive to keep its backrooms as clear as possible.

Target's CEO Brian Cornell has been adamant over the past year that the retailers is committed to its store-centered e-commerce fulfillment strategy. In May, Cornell pledged to fulfill two-thirds of e-commerce orders from stores in 2019 — generating analyst skepticism. But Cornell contends the fulfillment model reduced costs by 40% and the company is now making technology investments to further enable the store-centered strategy.

In September, the retailer pledged to double the number of seasonal hires it will dedicate to the fulfillment of e-commerce orders from stores.