Nov. 9 (Bloomberg) -- Target Corp. spent two years preparing to take control of its website from Amazon.com Inc. and on the day of the debut included a link on the home page titled “learn all about what’s new.” The link didn’t work.
The error, fixed later that day, proved to be a sign of problems to come. The new Target.com has crashed six times since it went live on Aug. 23, and accounted for more than half of the major outages this year at the top 100 sites in the U.S. by revenue, according to Web monitor AlertBot. The site’s president left the company. Black Friday, the biggest shopping day of the year, is also less than three weeks away.
“They could lose customers for this,” Robin Lewis, chief executive officer of the Robin Report retail newsletter, said in an interview. “Target is so on top of everything else they do over there, and how they run their business. For this to be happening is surprising.”
Like many brick-and-mortar retailers, Target has been grappling for years with how to improve its Web operations as shoppers migrate online. In the early days of the Web, companies such as Target and Toys “R” Us Inc. found it easier and less expensive to outsource their online operations to Amazon.
Target, the second-largest U.S. discount chain, partnered with Amazon in 2001 and paid commissions into this year -- more than $100 million a year, according to Colin Sebastian, a San Francisco-based e-commerce analyst for Robert W. Baird & Co.
The chain, based in Minneapolis, decided to bring Target.com in-house to improve the experience, eliminate the commissions to Amazon and integrate it with Target’s more than 1,700 stores.
Outside Comfort Zone
That meant it had to go outside its comfort zone by hiring developers and working with several partners to build a new site from scratch that generated more than $1 billion in annual sales.
Target’s problems aren’t unique and point to larger obstacles within the industry to improving e-commerce, according to Sucharita Mulpuru, an Internet analyst at Cambridge, Massachusetts-based Forrester Research Inc. Retailers need to have their own Web operations to compete with Amazon, and attracting top technology workers and executives can been difficult, she said.
“It’s really hard even in Silicon Valley to find IT engineers,” Mulpuru said. “Retailers aren’t getting the engineers from Facebook. This isn’t a-list development talent.”
Adding to the pressure on Target to make the transition to running its own site is that several of its largest rivals, including Wal-Mart Stores Inc. and Macy’s Inc., have already made the move, according to Lewis, also a former retail consultant for Goldman Sachs Group Inc.
Late to Game
“Target was a little late to the game in taking back control,” he said. “It looks like they are learning on the fly.”
Target rose 0.4 percent $53.05 at the close yesterday in New York. The shares have fallen 12 percent this year.
In the press release announcing the debut of the revamped site, Steve Eastman, president of Target.com, said the new platform would create a “more user-friendly, reliable experience.” So far, that hasn’t happened.
The first major sign that Target.com wasn’t ready came on Sept. 13, three weeks after its launch, when the release of a collection from Italian fashion house Missoni brought a rush of visitors to the site that rivaled the traffic on Black Friday and crashed it for most of the day.
Target.com President Leaves
A month later, on Oct. 13, the site went down again during peak shopping hours. Later that day, Target announced in a one- sentence statement that Eastman left the company to “pursue other opportunities.” Eastman joined Target in 1982, and was head of merchandising for consumer electronics when he moved to president of Target.com in June 2008. Target refused to comment on the departure and Eastman could not be reached.
Since Eastman’s departure, the site has crashed four more times, including once last week, and when it has been running shoppers have complained about problems with checkout and gift registries. Eastman’s position hasn’t been filled and the site’s staff is reporting to Kathryn Tesija, executive vice president of merchandising, Morgan O’Murray, a Target spokeswoman, said in an e-mail.
“We have a team dedicated to addressing concerns, and are working diligently to ensure that the site is operating efficiently for the holiday season,” O’Murray said. The retailer declined to provide specifics on its plans for the site or make an executive available for an interview.
SapientNitro, a division of Boston-based Sapient Corp., served as lead partner on the re-launch of Target.com. It has been working with Target to fix the site, said David LaBar, a spokesman for Sapient.
Web’s Rising Influence
Target is trying to improve its website as shoppers this holiday season plan to go online more than ever. About 82 percent will do some holiday shopping online this year, according to the National Retail Federation. That means more purchases are being influenced by the Web. Forrester estimates that while 90 percent of buying still takes place in stores, more than 40 percent is swayed by the Web.
The Web generates about 2 percent of Target’s almost $70 billion in annual sales, and many more purchases are influenced by browsing on Target.com, the company has said. The fourth quarter was also its most lucrative period last year, accounting for 31 percent of its annual revenue.
“They’ve got to fix this,” said David Strasser, an analyst for Janney Montgomery Scott in New York who has a “neutral” rating on Target shares. The performance of its site won’t make or break the holiday season for Target because its stores matter more, and yet “if anybody’s Web site keeps crashing, it will be bad for the holidays,” he said.
In any case, Sebastian of Baird says that, in the long run, Target made the right move. “The complexity of building a large-scale e-commerce site is really difficult,” he said. “But, at the end of the day, Target made the right decision. Amazon is a competitor, and you don’t want them controlling your e-commerce business.”
--Editors: James Callan, Kevin Orland
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