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Target last week made news with a joint letter from their Merchandising Chief and Chief Executive to their vendors.
According to the WSJ, “Target is reaching out to vendors to help craft a more competitive pricing strategy as it seeks to battle rivals and the lower-priced online market.”
In that letter, the retailer says it is not going to let online-only retailers use its stores “as a showroom” for their products. The result is an undercutting of Target’s prices “without making investments, as we do, to proudly display your [the vendors’] brands,” the letter states. The executives say they will be “challenging” the vendors “to work with us to develop an assortment that will allow Target to be competitive and profitable across all channels.”
Bravo Target!
This sends a bold message to online retailers and to the vendors Target has helped make successful. It is an opening salvo against the foregone conclusion that everyone is switching to buying everything either through smartphone apps or online. And against Amazon hijacking their customers.
Target’s partners are bound to accept the request, and Target won’t be the only one putting it out there. It could be as simple as vendors making minor changes in their products so the Target product wouldn’t have any exact match – the model number/bar code simply won’t exist anywhere except on the Target item. Therefore when customers find items at Target, they can’t swipe them with their smartphones to find them cheaper online. This is a step beyond private label – the reason to create these products is not to be necessarily a cheaper alternative to the brand. It is designed to be exclusive.
It would make it easy for Target to say, if you can find a lower price on the exact same item, we’ll match it because the exact same item won’t exist except at Target.
According to the National Retail Federation 95% of all retail operations are single store units.
Smaller merchants need to be able to mimic Target and say you won’t be able to find this product online either.
Look, 92% of merchandise is still purchased in bricks and mortar stores according to CNBC.
Smaller operators need to claim the kind of power Target has in order to thwart the online retailers who are looking to make bricks and mortar stores into showrooms for online products. But as single operators they don’t have much clout.
How to do it?
Most bricks and mortar retailers belong to at least one trade organization or buying group. They should band together and request this from their vendors so that their SKUS don’t match the online-only sites.
Ideally vendors have to be willing to create products that are slightly different and aimed for sales in either big box stores, smaller retailers or online retailers – but not for all. I’m sure many will be skeptical this could work.
But if bricks and mortar retailers can use their buying power to increase personalization through their instore channel, then they can leverage the advantage they truly need against the showrooming of Main Street.
What do you think? Could this work? Please comment below:
Having grown several CPG companies in the past, its very expensive and time consuming to develop and inventory different packaging for different channels. We had different SKU’s across our retail channels and even for individual retailers in each channel, not to mention the different SKU’s for online as well. This may be less of a problem for large CPG companies (I don’t have experience working in them), but for mid-size or small ones, you develop significant cash flow requirements when your inventory proliferates.
Creating different SKU’s so as not compete with online shifts the pressure from retailers to vendors/manufacturers. From Target’s perspective, I guess this is not not a bad strategy. From my perspective, being more on the small CPG vendor side, it creates problems for me.
Great point Ed, it is definitely a shift from the retailers trying to “just wait it out” and being proactive to not to end up a showroom. I know some who say the Target letter is a bandaid for a bullet hole but what is the alternative if you as the retailer shoulder all of the risk for developing and carrying these brands and not receive much benefit? Thanks for commenting!
I think that having the big name brand in your smaller store can “legitimize” your business in the customer’s eyes. Simply changing a barcode or SKU seems a little slimey. In our industry some manufacturers will create “limited run” products just for independant stores that allow for better margins. Maybe it would work in a “self-serve” environment like Target, but in a hands-on service business like our I’d rather focus on the service instead of playing games.
Agreed Jim, the ones most at risk of the Amazon price-checker apps are the larger, less service oriented businesses – for now. Mobile isn’t going away and the buzz continues to build so it is bound to touch every aspect of retail. Short of covering your entire store in aluminum foil or installing illegal jamming technology all retailers are looking at a vastly changed marketplace where they can lose a sale without even knowing. Thanks for commenting!
Target has lost its mojo. That’s the real problem.
It used to be such a fun and interesting place to shop that I NEVER would have considered using a mobile app to check prices online. However, the addition of the grocery subtracted all the magic from the in-store experience.
Yesterday I was discussing Target’s results with my husband and I mentioned two salient facts:
1. A year ago, when my coworkers and I squeezed a little shopping in during our lunch hour, we went to Target. Now we go to Pier 1 Imports. We don’t even care that they don’t have all of Target’s categories – Pier 1 is fun!
2. For many years I bemoaned the lack of a Target close to my home. They finally opened one up, and I don’t care anymore!
When Target went looking for scapegoats to blame it’s poor results on, it was all too easy to blame it all on Amazon. But I don’t think Amazon is the culprit here; I say, “Target, heal thyself!”
Jo
Hopefully someone from Target reads your insight Jo! Shoppers not having fun equals “See ya!” Thanks for stopping by and commenting.
It’s not clear to me why changing the barcode is “slimey.” Any single location store with a simple POS system assigns a SKU to every product it purchases and can print and apply a barcode right over the one on the product label. In the face of the presence of those apps that take customers straight to an online pirate, it seems foolish not to do this.