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In late 2013, Minneapolis-based Target Corp. suffered a data breach that compromised 40 million credit cards, derailed its call center and ultimately led to an $18.5 million settlement with 47 states and the District of Columbia four years later.
In 2015, Target hired Michael McNamara as its new CIO, who previously held that position at U.K. grocery chain and merchandiser Tesco. We sat down with him at NRF 2020 Vision: Retail's Big Show to talk about how Target reinvented its digital customer experience tech stack, and what new technologies will move the company forward as it takes on online and physical retail competitors.
You started at Target after the data breach. How does having gone through such a high-profile breach color the technology decisions Target makes now?
Michael McNamara: I think it catalyzed a change in the business, and I'm part of that chain. I think we take an extraordinarily responsible stance on security. We learned the hard way, right? It was shocking and traumatizing. It's a lesson that we will never, ever forget; there is not an ounce of complacency in our business around it. We brought in experts from government and defense industries. They created a security team for us that's still with us, creating a set of security management processes that are effective -- they keep the bad guys out, but they don't stymie the business. They're not slowing us down.
It was kind of a long time ago, and it's funny how it sticks in people's memories. And how many data breaches have we had since? Zillions. But everybody remembers it. We need to be [vigilant]. We, of all companies in America, are the ones that can't afford to have a data breach.
Describe how Target uses customer data -- it's complicated, spreading across physical and online retail, with enabling technologies like AI mixed in.
McNamara: Target is hugely invested in technology to begin with. We're very much invested in creating our own tech. So, other than accounting systems and stuff like that, we tend to build everything ourselves. We have a big software engineering function at Target [comprising] thousands and thousands of engineers, and hundreds and hundreds of data scientists.
It's all about being able to build superior customer experiences, clearly. That's what we do. So everything you see -- Target's app, on the website, point of sale and in stores -- and all the stuff in the background that goes along with that, personalization engines, [the loyalty program] Target Circle -- we built ourselves.
Why does Target roll its own, instead of buying off the shelf or having an agency build those digital platforms?
McNamara: I've always thought it was too important to outsource. As a retailer, you wouldn't outsource your merchant function, right? You just wouldn't get your merchandising from somewhere else. I think tech is in exactly the same place. It's always been really important in the back end, being able to deploy your supply chain efficiently has always been vitally important to retail.
At Target, two-thirds of our year-on-year growth is coming through 'digital originated' sales. We use the words digital originated because a lot of orders actually end up being fulfilled from our physical stores. When you order off Target online, there's an 80% chance that it's going to be shipped from a store. You just can't go and buy that software, somewhere, to do that kind of stuff.
Two-thirds of your year-on-year growth adds up to what overall percentage of sales?
McNamara: It's 10% of total sales; it might even be a bit higher, but thereabouts. Ten percent of total sales. Our total revenues are going to be somewhere around $80 billion, about which $7 to $8 billion will be online. And that continues to grow at 20% to 25% yearly, while retail in general grows at about 0% to 2%.
So how do the big software vendors like Adobe, SAP, Microsoft, Salesforce and Oracle fit into your tech stack?
Mike McNamaraCIO, Target Corp.
McNamara: We have all of them. Salesforce is unique. We still use it for our service centers. It's pretty cool, and I actually give them the credit for their service-center type software. It's been very, very good. Microsoft, everybody in the world's got Office, right? We've got Office. SAP we use as our accounting system. Oracle databases have hung around the place, from mainly legacy-type applications, but they're there. Some of our Target.com reporting comes through Adobe.
But the things that differentiate Target are not Office 365. What differentiates Target is our mobile app, our drive-up service in stores, our loyalty program. They're the things that matter. They're the things that we write ourselves.
What's the next digital customer experience project you're creating for Target's customers?
McNamara: As an industry, retail has been talking about this mythical omnichannel for years, and I actually think that Target is pretty close to achieving real omnichannel, integrated digital and physical experiences.
Again, drive-up is a really simple example, but it's the most in-your-face example: You order online, you choose to drive up and get it put in [your car]. As soon as your car hits a geofence that's around the store, it sends an alert to a team member. They'll pick your parcel, come out, and put it in the trunk of your car. That is completely integrating a digital and store experience in a very, very meaningful way that our guests love.
We joke about it being a very 'Minnesota offer,' because you know in Minnesota right now it's about six degrees Fahrenheit. So, if you've got two kids, you don't want to get out of your car. It works really, really well. That kind of experience is what retail has been after for a long time. I think we'll see more and more of that merging of the physical and digital shop.
Underneath Target is one technology stack; we don't have one for e-commerce and one for stores. So, it doesn't really matter whether you click a product online or you scan it on a self-service checkout, it's the exact same tech stack underneath both of those experiences.
What's the biggest tech challenge right now for Target's digital customer experience?
McNamara: I don't look at them as challenges. There is a ton of opportunity out there still. How do you bring inspiration online? I still think we're in the beginning stages of how you inspire people. Selling groceries is one thing, selling dresses is another. If you're selling dresses or you're selling home goods, like furnishings, you do need an inspiring experience online. People are getting there. We don't have all the answers, but getting really great online experiences for style categories is still a journey that retail is on.
For convenience-type categories -- groceries, essentials -- it's a different thing, all about speed. We'll tackle both of those things. How do I do an inspiring style experience, and how do I do a convenient grocery experience? I think we'll be doing that for a long while.
I think we're pretty good at personalization, customizing things like recommendations to you. On the homepage, we're pretty good customizing the offers [and] your coupons for your store experience. But we still aren't there. I think we're still in the early stages and those journeys and I think they'll become more sophisticated.
What software or cloud innovations do you wish to see in the future that aren't yet available?
McNamara: Technologies takes a long time to mature. You see things come into the market and they create a bit of a buzz, but the reality is they take decades to become a practical, viable thing at mass scale for a retailer like ours. If you look at something like RFID, it's been knocking around for 30 years. I think my first RFID project was in 1997. You wind forward 20 years, and not many retailers have wide implementations of RFID. Target does, as it happens, and a few other biggies do.
Autonomous vehicles have been figuratively, metaphorically and actually driving around in circles in the Bay Area for the last five years, and we're still probably five years away. You might start to see them in very, very limited things like airport shuttles or something like that. But it's still a long way away before no one's driving on the highway.
The point I'm making is that tech matures much, much slower than people realize. I don't expect to see anything out there that's going to wow me. What I do expect is to see is where things are maturing, and where things are just stalling.