Target Looks to Battle Pricing Apps
By Tom Ryan
January 24, 2012
Target
Corp. is exploring pricing changes to counter the practice of
"showrooming," or using mobile pricing apps to check out and scan the
price of products in stores only to purchase them at a less expensive
price online. "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," according to a letter signed by Chairman, President and CEO
Gregg Steinhafel and Executive Vice President of Merchandising Kathee
Tesija and sent to some of its vendors regarding the changes.
The letter was first disclosed by Citi Investment Research's Deborah Weinswig, followed by a report in The Wall Street Journal. Target confirmed to the Associated Press that the letter was sent but declined to confirm any details. In
the letter, Target reportedly asks vendors to help it create more
exclusive items to create a greater point of differentiation and reduce
product-on-product price competition that has become easier for shoppers
to uncover through computers and smartphones.
According to the Journal,
where exclusive products aren't possible, suppliers are being asked to
help it match rivals' prices. In her report, Ms. Weinswig wrote that she
thinks Target is "exercising leverage over its vendors to achieve the
same pricing that smaller, online-only retailers receive. This strategy
would help Target compete with retailers like Amazon on like-for-like
products."
Finally,
Target indicated to its vendors that it is exploring the possibility of
creating a membership or subscription-based online pricing, which Ms.
Weinswig believes might be similar to Amazon's "Subscribe and Save"
program. The program gives regular buyers of certain products, such as
diapers or coffee, special discounts. The
move comes as online sales jumped 15 percent this holiday season, more
than three times the 4.1 percent rate seen for retail overall.
The Journal
quotes a few analysts believing Target's reported moves likely won't
reverse the "showrooming" trend. They said online retailers have
significantly lower labor costs, don't collect taxes in most states, and
can use other revenue generators — such as cloud data storage and fees
it charges others to sell on its website — to subsidize the lower
margins it gets in retail.
"The
traditional retailers are still doing business the old way while Amazon
has reinvented the model," Sucharita Mulpuru, retail analyst at
Forrester Research, told the Journal. "Wal-Mart and Target are willing to sell a few things at a loss. Amazon's whole business is a loss leader."
