Analyst: Price-matching could backfire on Target
Target recently announced an extension of its price-matching policy to include more than 20 additional online competitors. The decision should give shoppers more confidence they are getting best possible prices. But in the long run, one analyst thinks the announcement could lead to long-term negative consequences for the Minneapolis-based retailer.
Currently, about 2 percent of shoppers obtain price matches. But as prices become more transparent, the number of shoppers seeking price matches could accelerate.
“The central problem with price matching — particularly against Amazon.com — is that Target is virtually assured of losing money on the transaction,” wrote Mark Miller, an analyst for William Blair & Co. “And not just in the short term, but probably always, because Amazon does not make money on first-party transactions.”
Miller explained that Amazon makes its money on third-party transactions and from Amazon Prime memberships. Without that kind of revenue, Miller speculates Target would have a hard time maintaining profitability online.
Miller laid out a best-case scenario for Target in which they hold onto their most price-sensitive consumers at lower margins “while hoping the rest of us will not notice, or not care” that general merchandise prices are higher than Amazon and other online sites.
Select Comfort’s big software update
Plymouth-based Select Comfort Corp. is spending $11 million to $12 million installing new enterprise resource planning software this month.
Seth Basham, an analyst for Wedbush Securities, which covers Select Comfort, wrote in a research note that he believes implementation of the new software, which began on Monday, is on track. The company, he said, made some free shipping offers and other promotions in part to compensate customers who may experience delays while the company installs the software.
Free shipping represents a $180 value for customers. While the deal is no longer available, Basham calculates it could cost Select about 20 basis points in its fourth quarter gross margins.
Store personnel had been warning customers about the possible disruption.
“We see this as a move to ameliorate customers and help fill an order air pocket that will likely be caused at least this week by the ERP implementation,” Basham wrote.
Basham’s rating is “neutral” but calls Select an “increasingly interesting stock” partly because shares have declined about 25 percent since June 15 and are now trading closer to historical earnings multiples.