It’s no secret that Target Corp. has high hopes for its PFresh grocery format. Food and grocery products are driving most of Target’s slow comp sales growth—0.5 percent over nine months. PFresh also attracts a lot of repeat business since people will eventually run out milk and bread.
Grocery items are not the easiest things to carry, even for people just wanting to make a quick run for a few items. So why does Target located PFresh so far away from store entrances?
Precisely because Target does not want consumers to make a quick run for a few food items.
“Target wants PFresh customers but they don’t want just PFresh customers ,” said Amy Koo, an analyst with Kantar Retail consulting firm in Boston.
Target’s strategy has always been to get people to buy as much as they can in a store. You may have intended go to a Target only to buy milk and bread but you wind up leaving with a cart full of higher margin clothes, accessories, and home goods. Think about the REDcard ‘s 5 percent discount of total purchases. The more you buy, the bigger the discount.
That strategy is embedded in the store design: to get to PFresh, you must generally pass through a gauntlet of clothes, shoes, jewelry, and sporting goods, a pathway that will inevitably tempt you to buy more.
“It’s like Target is saying ‘we are going to call you on your bluff,’” Koo said. “You may have intended to buy food but you really want to buy clothes.”
Excluding SuperTargets, regular Target stores usually have only one entrance, lest you sneak in through a side door closer to PFresh.
Target’s strategy is clever but does not come without sacrifices. The first is convenience.
Consider CityTarget. The retailer touted CityTarget as the ideal smaller format for the hurried urban shopper who are not likely to drive cars and buy large quantities of goods, possibly because they are single and rent apartments. A perfect place where you can rush in during your lunch break or just after work, grab some stuff, and then hurry off to the subway or commuter trains.
But visit the CityTarget in Chicago and you’ll discover PFresh is located on the second floor near the back of the store, arguably the least convenient place to buy groceries.
“Convenience can mean different things,” said spokesman Eric Hausman. “CityTargets are convenient because of their locations” in the city core.
The second issue with Target’s approach is the type of customer it normally attracts. Target has always excelled at making its most loyal shoppers even more loyal. These are the type of customers that will gladly buy a lot of stuff at Target.
And let’s face it: if you’re going to navigate the maze of Target departments just to buy some bread and milk, you must really love Target or you must really love bread and milk.
But here’s the rub: Target actually needs to attract a broader group of shoppers beyond its diehard “Best Guests,” Kantar says.
Given Target’s sales challenges since the Great Recession, Kantar argues the retailer needs to focus on the casual, less affluent customer who are more likely to buy fewer items than load up on the Missoni and Nate Berkus collections.
Indeed, about a third of Target’s sales come from customers who make less than $50,000 a year.
One way Target can reach those customers is to make their shopping experience more convenient. To that effect, Target has established Dollar Store like selections near the checkout areas at the front of the store as well as “grab and go solutions “ throughout its departments.
CEO Gregg Steinhafel has also told analysts that Target is looking for further ways to shrink the size of CityTargets. Perhaps that path to PFresh will get a little shorter.
Target Corp. has certainly come a long way with its e-commerce efforts. Two years ago, the company’s website couldn’t even properly process orders following the roll out of its Missoni collection.
Fast forward to 2013. As of the first week of November, all 1,800 of Target’s stores in the United State offer consumers the ability pick up merchandise in the store that they had ordered online.
Buy Online, Pick Up in Store is not exactly new: Best Buy and Macy’s have long offered the service. But given its ambitious timetable—CEO Gregg Steinhafel told analysts during the summer the retailer planned to complete the roll out by Black Friday—Target not only finished the job but finished it a good three weeks early.
Amy Koo, a retail analyst at Kantar Retail, expressed skepticism that Target could complete the project in such tight timeframe. But the company seems to have adopted a more cautious approach to the rollout, she said.
Unlike the launch of the redesigned Target.com in 2011, the retailer has not heavily publicized the debut of Buy Online, Pick Up in Store. Back then, critics argued that Target did not adequately test its website to see if it could handle all of the heavy traffic the Missoni collection was bound to attract.
This time though, Target opted for a “soft launch” to first the test the service on employees and some customers.
“Target did not make a big splash, which makes it easier for them to first get the hang of it ,” Koo said. “It’s a real good thing to ease into it rather than make a big blowout statement.”
Even now, the service remains rather low key. Koo said a store she recently visited was only filling 10 to 15 orders a day.
Target is apparently still working out the bugs. A good friend in San Francisco recently complained to this blogger that the item she ordered on the website was not set aside for her when she visited the store.
“Target made up for it though by helping me find the items and helping me wheel them to my car,” she said.
The National Retail Federation had some interesting numbers from Thanksgiving/Black Friday weekend.
Low prices helped keep Americans’ budgets in check this weekend: on average, shoppers spent $407.02 from Thursday through Sunday, down from $423.55 last year.
That’s one way to look at it. Here’s another interpretation: consumers on average spent less than they did than the same period a year ago.
More than 141 million unique shoppers have already or will have shopped by the end of the big Thanksgiving weekend, up from 139 million.
More shoppers are always a good thing. But when you factor in how much money they spent, you get this: the number of shoppers over the weekend grew just 1.4 percent while average spending fell 4 percent.
Yikes. A 1.4 percent gain in shoppers hardly equals out a 4 percent decline in spending. Retailers are essentially brawling over a barely growing pool of Black Friday shoppers who are actually spending less on average than did a year ago.
In addition, there is one less shopping week this year because Thanksgiving fell on the last week of November. Suddenly, a season with an already low margin of (profit) error just got a little more perilous.
In warmer parts of the country, bargain hunters have been lined up in front best Buy stores for nearly a week trying to save $500 to $1,000 or more on big screen TVs and other electronics. But Minnesotans seem to be less patient and more weather weary. We wait until the Sunday before Thanksgiving before hauling out the tent, portable heater, rations and camping chairs.
That's according to Joe Geary of Minneapolis (pictured), who is first in line at the Best Buy in Richfield. It's his 16th year in front of Best Buy for Black Friday deals. He keeps 10 percent of what he hauls in that day and gives the rest away to people in need, he said. An employee at the Bureau of Indian Education, he's on vacation this week, as he waits and waits and waits for TVs and computers discounted hundreds of dollars.
At 3 p.m. Monday, three tents had been set up at the Best Buy in Richfield. Only two were occupied, one by Geary and another by an unemployed man who asked not to be identified due to a pending "settlement" of an undisclosed nature. Both spoke of the camaraderie that develops among the campers. Geary brings coffee and doughnuts for his new friends.
Best Buy shopper Tom Seibora of West St. Paul thinks the camping out is "ridiculous." "I did it once and would never do it again. It's not worth the aggravation," he said.
So what is it worth? Let's say a person spends about 100 hours (4 days) waiting for Best Buy's doors to open at 6 p.m. on Thanksgiving. And let's assume that they save $1,500 on their purchases. In that case, the bargain bunter is getting paid the equivalent of about $15 per hour.
Another upside? They're not stuck making Thanksgiving dinner. Most of the campers have family or friends who bring it to them, said Geary.
In what is being seen as a response to Wal-Mart's price matching some of Best Buy's Black Friday prices on Friday, Nov. 22, Richfield-based Best Buy announced late Thursday that it will offer a number of doorbusters of its own. The sale runs through Saturday, Nov. 23.
Model numbers weren't provided but the deals include:
The items listed are offered online and in the store, according to Best Buy spokesman Jeff Shelman.
How do they compare to other deals next week on Gray Thursday/Black Friday? Target will have an Element 50-inch TV for $229, but the cheapest 50-inch Vizio on Amazon Thursday was about $650, so the Vizio for $449 isn't bad. The Samsung Galaxy S3 deal isn't quite as good as Best Buy's similar deal for a free S4 with two-year activation on Black Friday.
Wal-Mart will open two hours earlier on Thanksgiving than it did last year. Target opens one hour earlier. Best Buy, six hours earlier. Will the one-upmanship ever end?
Not a chance-- if you believe in the game theory called the "prisoner's dilemma," said Mark Bergen, associate dean of marketing at the Carlson School of Management at the University of Minnesota. The original prisoner's dilemma involves two members of a crime ring who are arrested and imprisoned. Each is in solitary with no means of speaking to each other. The police admit they don't have enough evidence to convict the pair on the charge, so they plan to sentence both to a year in prison on a lesser charge. The police offer each prisoner a bargain:
+If A and B both confess to the crime, each of them serves 2 years in prison.
+ If A confesses but B denies the crime, A will be set free whereas B will serve 3 years (and vice-versa).
+ If A and B both deny the crime, both of them will serve 1 year in prison.
According to the game theory, betraying your partner always rewards more than cooperating with them. The same theory has played out before our eyes for several Thanksgivings now. Each year, the a new retailer decides to open earlier to give itself an edge. (Best Buy and Wal-Mart opening at 6 p.m. on Thanksgiving, for example). And the earlier openings do give those retailers an edge, said Bergen. They may get 20 or 30 percent share instead of 10 percent, he said in an example.
But what's interesting is that overall, retailers are not benefiting much. There is no net benefit to opening early since they all do it, said Jean-Pierre Dube at the University of Chicago Booth School of Business. "They incur the costs of the early opening--having to pay employees holiday wages and possibly damaging consumer goodwill by opening on Thanksgiving."
What makes this a prisoner's dilemma, said Dube, is the lack of an obvious way for retailers to get out of the situation.