Flip through the analysts’ comments that followed Target’s first-quarter earnings release last week, and it looks like Target is having a tough time fending off competitors coming from all sides.
Sales came in only a little weaker than expected, but store traffic actually declined. Yes, the weather was lousy, but there also was a loss of Target customers to cheap dollar stores, some analysts said.
Mark Miller of the Chicago firm William Blair & Co. attributed the disappointing quarter to a “meaningful share loss to e-commerce competition,” and he means mostly Amazon.com.
As for Target’s response to these threats, well, it did just close on its first significant acquisitions in 15 years, of Chefs Catalog and Cooking.com.
No one could conclude that either deal makes Target more like Amazon.com or Dollar Tree or any other head-to-head competitor apparently causing Target pain.
But that doesn’t make these acquisitions foolish. In fact they may even be a model as Target seeks growth. They also say a great deal about how leaders at Minneapolis-based Target think.
They correctly understand that what Target really competes against every day is Target. It doesn’t need to get more like Amazon.com or Dollar Tree, it needs to get better at being Target than it was last week or last quarter.
One of those thinkers is Casey Carl, Target’s president of multichannel and its senior vice president of enterprise strategy, and the first thing he cleared up in a conversation last week was the idea that Target has an acquisition strategy. Nope, he said, “we have a business strategy.”
And all things cooking have become increasingly important to its growth.
Chefs Catalog, like it sounds, started producing a catalog of kitchen products in 1979. It’s one of the catalog companies that managed to make a transition to the Internet, although it still produces catalogs.
Cooking.com got its start in 1998 and has developed into a source for recipes and other information about food and cooking, along with lots of opportunities for consumers to purchase products.
In addition, Cooking.com operates online stores for a number of others, from the Food Network to the Calphalon cookware brand of Newell Rubbermaid.
Cooking.com is one of the reasons an iPad has replaced a cookbook in many American kitchens. As Carl put it, “if you are a cook or literally a novice, the odds of you typing in ‘cooking.com’ as a first starting point is dramatically high.”
The acquisitions also came with product brands that Target does not sell but that many of Target’s customers already know and use, such as Wüsthof knives and Le Creuset cookware. There will be some cross-promotion between the new properties and Target, both online and in the stores, and that may include offering Target’s own brands of kitchen products through Chefs Catalog and Cooking.com.
But the key to understanding this strategy is to see how the idea of offering cooking advice and in-depth catalog copy in praise of a kitchen gadget some of us have never seen before fits so well in Target’s basic positioning of “Expect More. Pay Less.”
Target’s customers expect more, and now they will get more.
Taking that same approach in other product categories may be possible, although analyst Mark Miller noted in an e-mail that it would only be “applicable in other product categories that have similar content or community characteristics. Many other parts of the store are more transaction oriented, and there Target simply needs to have the right assortment at the right price — including shipping — to win.”
Carl said Target’s strategy is not to simply add more and more kitchen products to an e-commerce site. That’s easy enough to do, as there’s no shortage of suppliers of kitchen equipment who would want to get their products on Target.com, but it’s not exactly strategic.
“We want to have what our guests expect,” Carl said. “And that’s a smartly curated assortment.”
A search for coffeemakers in the home category of Target.com turned up 227 items. On Amazon.com the same search came back with 9,353 products. That’s the difference between having a curator, smart or otherwise, and having no curator.
Target is assuming that its customers will be perfectly willing to let Target cut the first 9,100 items from their list of options.
The challenge for Target is to keep the savvy customer on its site all the way through to a purchase, and not try to use its curation to find the right coffeemaker and then shop Amazon for that exact item. That’s pretty easy to do: a great-looking red KitchenAid 14-cup coffeemaker is $99.99 on Target.com and looks to be available on Amazon.com for $81.99.
Carl said Target has no intention of following Amazon.com’s strategy of presenting a nearly endless list of products, just as it has no intention of trying to match the strategies of retailers completely focused on offering the lowest prices.
“We don’t want to be Amazon; we want to be a better version of Target,” he said. “Whether it’s expanded sizes or colors, whether it’s incremental brands, whether it’s incremental services that we can offer to all of our guests, even if it might not be available in their local store.”
“To me that’s just a better version of the Target you already know.”