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And We Thought We Had Problems

April 5, 2012
Would you believe it, Target is upset that consumers use their brick and mortar locations to inspect a product and then go out and buy it cheaper over the Internet! Gosh darn it, consumers have some nerve, huh? Well, Target isn’t going to take this lying down. In fact, they got righteously indignant in a letter they sent to their vendors where they said, “What we aren’t willing to do is let online-only retailers use our brick and mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands, create a superior guest experience, provide hundreds of thousands of jobs and support local communities.” *

In addition to their ranting about how unfair this is, they have come up with a set of strategies which could include getting vendors to give them exclusives for their brick and mortar stores, getting better prices from vendors so they can compete price-wise against E-tailers, and/or creating membership- or subscription-based pricing on their web sites which would compete with online pricing models.

Of course, Target is nothing if not a humble partner to their vendors. To make that perfectly clear, they went on to say in that letter it “has prided itself on being a retailer that has truly collaborative vendor partnerships. . . You can count on us to work tirelessly toward mutually agreed-upon goals that build your brands and business. . . “  From the viewpoint of market analysts, it sure does seem that Target is throwing its considerable weight around to get pricing concessions from their vendors. Price, not service, is very important in their markets.

Makes me want to chuckle, how about you? If you substitute your name for Target and the name of your favorite manufacturer for any Target vendor, this sounds like what we have been fighting for years. How many of us have complained to one vendor or another that their product is on the Internet being sold at ridiculously low profit margins?  Our industry is lucky in that most of our major manufacturers will try to pull their products from these sites. (We'll see how long they continue to do that.)

But, poor pitiful Target, because of the type of products they carry, I don’t think they have a snowballs chance in you-know-where to get products they carry off E-tail sites. They have a better chance of getting price concessions. And, they need them since so many of the products they carry are available ubiquitously even taking the Internet out of the equation. Strong competition like that makes product pricing inelastic. To stay in the game they have to get lower prices or lower their profit margin. Which do you think they are going to do?

At least outdoor furniture specialty retailers have the edge on Target in regard to pricing. While the cost of a set of furniture is important, service is almost as important in our category. There is no question we have lost sales to Internet retailers due strictly to price. We have also won many of those same sales because the customer realizes how important our service is to them before, during, and after the sale. Target says they “create a superior guest experience.” That mostly refers to their displays, ease of purchase, and inventory on hand rather than the type of service to which we commit.

Pity the poor pitiful Target, or Sears, or even Wal-Mart as sites like gear up to become the largest retailers in the world. That is unless Target ups the ante by creating bigger and better web experiences than Amazon. What then, I wonder, would be Target’s take on Internet competition?

Yours in confused retailing, Bruce

*Thanks to the reporting of David Gill in his article "A Message from the Bull's Eye."