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.
Target Corp. thinks its smaller format CityTargets can get even smaller.
During a recent conference call with analysts to discuss second quarter earnings, CEO Gregg Steinhafel said the company was looking at ways to reduce the size of the urban centric store.
“We are building the capability to operate stores in smaller spaces, particularly in urban markets,” Steinhafel said. “We are analyzing results in our [existing CityTargets] to understand where in the stores we have the ability to reduce space even more allowing us to further shrink the size of this store format.”
Launched last year in cities like Chicago, San Francisco, and Seattle, CityTargets are typically 80,000 to 100,000 square feet compared to the regular big boxes, which typically 150,000 square feet or larger.
For Target, the obvious advantage of the format is that you can find more places to stick one in a dense urban core.
Target was pretty lucky to find the urban real estate to accommodate the seven CityTargets it currently operates, said Amy Koo, an analyst with Kantar Retail consulting firm in Boston.
“It’s really hard to find these spaces,” she said.
Going smaller will presumably give Target more options as it scouts future locations for the format.
Thinking even further ahead, Target’s experimentation might allow it to figure out ways to shrink the size of its regular big box stores to make them more productive, Koo said.
With U.S. sales weak, big boxes like Best Buy and Sears have adopted strategies to make the most of its space. Best Buy has partnered with vendors like Microsoft and Samsung to create store-within-a-store concepts while Sears has leased excess space to outside companies.
Big boxes over the next decade will realize that they don’t need nearly all of the space they currently own or lease, Koo said.
“People just don’t go to the general box to stock up anymore,” she said.
Target Corp. CEO Gregg Steinhafel acknowledges that the retailer suffers from a “price perception” problem in Canada. Consumers readily buy Target’s “discretionary” merchandise like clothes and home.
But when it comes to “non discretionary” items – such as food and healthcare – shoppers assume Target’s prices are much higher than that of Wal-Mart or Loblaws.
For that reason, Target’s Canadian sales have fallen below the company’s original projections. Still, the company’s price perception woes are not exclusive to Canadians.
Over the past three years, Target has struggled with weak U.S. sales during the crucial holiday shopping period. Part of Target’s problem is that the company has not cut prices as aggressively as its competitors, analysts say. Holiday is largely about discounting, but Target has refused to chase what it calls “temporary market share” at the expense of profit margins.
In any case, Target’s prices are probably not materially more expensive than rivals. The company already offers 5 percent off each individual purchase with a REDcard. And Target recently decided to match online and in-store prices of competitors like Wal-Mart and Best Buy, and offer free shipping.
“There isn’t going to be a meaningful change in our [holiday] strategy, because day-in and day ... our prices are competitive,” Steinhafel told analysts during a recent conference call. “We have a very strong value proposition and our circular pricing is even more aggressive than that and we take market leading positions.”
But perception doesn’t always match reality. Target’s prices may be competitive, but Americans looking for deals will likely assume Wal-Mart and Amazon have lower prices, analysts say.
“For the last three holiday seasons, [Target] has performed poorly,” Daniel Binder, a retail analyst with Jefferies & Co., wrote in a recent research note. “This appears to reflect its less aggressive pricing message even as its everyday low prices competitive.”
“We do remain concerned that its less aggressive promotional posture during the biggest quarter may contribute to a loss of mind share with its core customers,” Binder wrote.
In other words, for all of its marketing prowess, Target doesn’t effectively communicate to consumers its holiday prices are just as good if not better than everyone else’s.
To address soft sales in Canada, Steinhafel promised to take quick action to educate consumers.
“We’re going to make sure that our prices get more notice than they have been up to this point,” Steinhafel said. “Part of that was a conscious plan on our part to make sure that we really won in home and apparel and we feel real good about where we’re in those two businesses today, so we’re proud of that fact.”
“Now we have to just turn on the gas a little bit on the other side of the equation to make sure that we’re getting the Canadian guest to understand what great values we offer,” he said.
Steinhafel could easily apply that same logic to American consumers come November and December.