A Message from the Bull's Eye
By David Gill
In a letter to vendors, Target threw down the gauntlet in its battle against the online competition.
The letter, a copy of which was obtained by HFN, set out a new strategy in response to the rising number of shoppers who visit Target (and other retailers') stores to look at products, then buy those products online at lower prices.
Signed by both Gregg Steinhafel, chairman, president and CEO, and Kathee Tesija, executive vice president of merchandising, the letter said specifics of the program "could include providing a differentiated guest-focused assortment from online-only retailers that still includes best sellers ... pricing the same as online-only retailers without lowering our overall JBP margin ... developing membership- or subscription-based pricing online to compete with online pricing models in the market."
The letter was written in a spirit of cooperation, according to Target: "Target has long prided itself on being a retailer that has truly collaborative vendor partnerships that are focused on the long term. You can count on us to work tirelessly toward mutually agreed-upon goals that build your brands and business...."
However, a note to investors from Deborah Weinswig, Nathan Rich and Michael S. Palahicky, analysts with Citigroup Global Markets, said this move is, in large part, a pricing issue. "Given its size, we believe (Target) is exercising leverage over its vendors to achieve the same pricing that smaller, online-only retailers receive," the note said.
The three analysts cited Amazon.com as one online retailer that has taken advantage of the trend of shopping in stores and buying online. Along with giving Target the ability to demand lower prices from vendors, this strategy would put more emphasis on exclusives for Target, products unavailable anywhere else, they said.
They also warned that this concept might not stop with Target. The Citigroup note said, "We expect more and more brick-and-mortar retailers to rethink their pricing strategies in 2012 and increasingly demand support from their vendors as they strive to compete with lower-priced online retailers.
The Target letter said the company understands consumers' efforts in using technology to find merchandise at the best price. "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," the letter said.