Discuss the type of distribution strategy that Target most often practices. What does this type of distribution strategy entail and why is it an effective strategy for Target?

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In Spring 2018, Target modified their distribution strategy. They reduced inventory in their bricks-and-mortar stores, cut the replenishment cycle to under 24 hours, increased the number of scheduled deliveries, and increased the amount of product available for online fulfillment.

This is an effective strategy for Target for a number of reasons. It reduces the carrying costs of retail stores both by reducing inventory and redirecting product for online fulfillment, which is accounted in a separate value chain. It reduces, other things being equal, the Purchase to Payment and Order to Cash cycles, which increases cash flow. You can also posit increased sales and overall inventory churn, increased receivables turnover, and increased operating profit.

Things to watch out for include increased costs of transportation, fuel, insurance and driver labor. If on-the-road costs increase significantly, this will affect the overall return on the change in strategy, but since these are variable costs it shouldn't by itself cause a change in direction.

Target has done this with no significant increases in capital spending year-on-year. Rather, capital spending has been redirected to online fulfillment by refitting back-of-house space in existing stores and retraining employees.

The big win for Target is it's competitiveness in online shopping should increase dramatically, because it has significantly increased distribution spend and capacity without significantly increasing costs.

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