Target Fills Its Cart With Amazon Ideas
MINNEAPOLIS— Target Corp. TGT -0.31% has come up with an answer to Amazon.comInc. AMZN -1.36% Copy it.
The discount chain's latest online offerings have a distinct Amazon feel—from recurring deliveries for diapers to on-demand streaming video and free shipping and discounts for its members. All emulate similar offers from the e-commerce company.
Target's headquarters here is also taking on some perks more typical of West Coast technology companies than a Midwestern retailer. That includes vintage arcade games, a boccie ball sand pit and a red basketball court stamped with the retailer's bull's-eye logo. And next year, the company plans to spend more on technology than it does on building and upgrading its stores.
Target says Amazon is just one of many competitors and it isn't mimicking anyone. Still, the moves highlight an important fact of doing business at Target: the customer who visits the discounter's giant stores and the customer who orders online from Amazon are increasingly the same person.
According to consultancy Kantar Retail, 62% of Target's shoppers also visit Amazon within four weeks of their Target trip, up from 33% in 2007. Target shoppers are most likely to also shop at Wal-Mart Stores Inc., WMT -0.20% but soon Kantar expects Amazon to take that distinction.
The deep overlap poses a significant threat to a company that despite the cultural moves and heavy investment continues to struggle with e-commerce, even as customers shift more and more of their shopping online.
Target's Internet sales are puny—less than 2% of its $73 billion in total sales last year. By comparison, Amazon's North America sales rose 30% last year to $35 billion, most of it in categories of goods that Target also sells. Meanwhile, traffic to Target's stores, as evidenced by its overall transaction count, has fallen for three straight quarters.
Last month, the company dialed back its long-term goal of reaching $100 billion in sales by 2017. Executives acknowledge the company's U.S. business isn't going to grow as fast as previously thought. Part of that is the slow economic recovery, but part of it is also a failure to capture online sales.
"We have to double-down, and we are doubling, tripling and quadrupling down," Target's Chief Executive Gregg Steinhafel said in a recent interview about using digital tools like its website and apps to drive sales.
In an effort to catch up, Target this year is spending about as much of its $2.3 billion U.S. capital budget on improving its technology, developing mobile apps and modernizing its supply chain as it is on opening and remodeling stores. Next year, the company will spend more on those investments than on stores, an acknowledgment that future growth will increasingly depend on digital sales.
Target executives blame the drop in U.S. store traffic on the slow economic recovery and higher payroll taxes, saying it isn't only due to a shift online.
"It's not as if just overnight our traffic levels are down because of Amazon," Mr. Steinhafel said. "There might be some correlation."
Amazon has long been intertwined with Target. The discounter outsourced management of its website to Amazon for a decade before pulling the plug on the deal and bringing its e-commerce operations in house in 2011. The following year, Target stopped selling Amazon's Kindle devices, without explanation.
Target's decision to let a rival operate its website for so long is viewed by some inside the company as a mistake, one caused by a failure to recognize the competitive threat Amazon posed to the company's core business, a former Target executive said.
Even when the partnership ended, Target was focused on renovating existing stores by adding more fresh foods, building its store-branded Red Card credit and debit-card business, and exploring an entry into Canada. Those efforts crowded out some of the focus on e-commerce, the former Target executive said.
Adding food helped Target get more everyday trips and better match what Wal-Mart stores offered, and the Red Card, which offers discounts, now accounts for more than 20% of purchases and is growing ahead of expectations.
The Canada push had a rocky start with fewer repeat shoppers than expected, and Target now expects profits will take longer to come.
"It was a very aggressive agenda, and it has stretched us and tested us," Mr. Steinhafel said.
Like other retailers that have confronted the Amazon threat, Target sees its physical stores as an asset that the strictly online retailer doesn't have. For instance, Target is trying to boost sales of baby equipment by adding employees to aid customers, something Target has tested in Chicago and is rolling out to more markets.
The company is also putting in so-called beauty concierges to push cosmetics, and it is expanding these to 300 stores by year's end.
Both moves appear to be aimed at boosting sales for two profitable categories that have migrated to the web, Kantar Retail's Leon Nicholas said.
Some of Target's responses fall short of Amazon, which could make it hard to stem the loss of customers. Its subscription service only covers baby supplies, far fewer than Amazon's Subscribe & Save, which also offers deeper discounts based on how many items are in a scheduled order. Target does plan to expand its subscriptions to offer limited selections of coffee, personal care products, paper towels and toilet paper by the end of the year.
Target also is letting its customers retrieve online orders at any one of its 1,800 U.S. stores starting this holiday season, much like Amazon's package pickup program at lockers in 7-Eleven convenience stores.
But having in-store pickups is something other brick-and-mortar retailers have been doing for years and some, like Wal-Mart and Home Depot Inc., have carved out space in their stores. Target has dedicated space for pickups in only a handful of locations.
Some customers prioritize convenience over all else, a problem that will be hard for Target to remedy. Emily Mohry finds Amazon a welcome alternative to trips to Target. The mother of two from Mertztown, Pa., used to stop by Target every week before she had kids. But since joining Amazon Prime, she now goes to Target less frequently.
"Amazon is an easy way to get stuff delivered to my house and not have to drag my kids out, even if it's a couple dollars more expensive," said Ms. Mohry, who works for a marketing firm.
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