Target tries to fight off online retailers

Jeff Chiu / AP

Customers shop at a Target Store in Colma, Calif.

By Marisa Taylor

In an effort to prevent consumers from taking a look at merchandise in-store, but using smartphone apps to?shop for cheaper prices online, low-end retail chain Target is scaling up its business model by asking vendors to create Target-exclusive products.

The problem, experts say, is that there isn?t much Target and other big-box retailers can do to quash competition from online giants like Amazon.com and Overstock.com. The practice of so-called "showrooming," when shoppers hit the brick-and-mortar venues to determine whether they like an item, but then buy it for cheaper on Amazon.com, is here to stay, these experts note.

?The bottom line is that the more commoditized the product is, the more people are going to look for the cheapest price,? said Morningstar analyst Michael Keara. ?If there?s a significant price difference [among retailers] and you?re using it on a regular basis, you?re going to go to Amazon.?

Consumers turned to online shopping in droves this year, spending a whopping $37.2 billion during November and December of 2011 alone, representing a 15 percent increase in spending over the same time period in 2010, according to digital research company comScore.

And while many retailers, from J.Crew to Barnes & Noble, offered free shipping and steep discounts on merchandise in the days leading up to Christmas, smaller brick-and-mortar retailers cried foul when Amazon.com rolled out its Price Check App last December.

Amazon offered customers an additional 5 percent discount on products they purchased using the app, which would essentially strangle brick-and-mortar stores by encouraging shoppers to seek products there, but buy them online.

Indeed, Target sent an ?urgent? letter to vendors last week, asking them to ?create special products that would set it apart from competitors,? according to The Wall Street Journal. Citigroup?s Deborah Weinswig told the Associated Press that Target?s letter insisted that it would not ?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.??

Target would not comment on the letter, but did say that the company ?has long prided itself on having truly collaborative vendor partnerships and we continually work with our vendors to remain competitive in the ever-evolving retail environment,? according to an e-mailed statement from Target spokesperson Molly Snyder.

Other big-box retailers -- such as Wal-Mart, Best Buy and Sears --?did not immediately respond to requests for comment. Amazon did not respond to a call for comment.

Target also recently announced that it would partner with a number of boutique chains -- such as The Candy Store and Cos Bar --?to carry specially designed Target wares, and it has long teamed up with high-end designers to create special budget lines for its stores to increase demand.

Analysts say that other big-box retailers will likely try to follow Target?s example of creating exclusive products and shopper loyalty programs,?such as?Target?s RedCard, which offers cardholders free shipping for online purchases and a 5 percent discount on select products.

?The trend toward more exclusives has been growing anyway, and showrooming is just another accelerant,? wrote Sean McGowan, a senior analyst at Needham & Company, in an e-mail message.

And whether Target likes it or not, when it comes to higher-end products and national brands, consumers aren?t loyal.?The advent of online shopping just exacerbates that.

?This company is under extreme pressure to keep their margins down,? said Morningstar's Keara. ?They really need you to come into the store and buy things that are a little higher margin.?

But that?s where Amazon goes in for the kill, because today?s cash-strapped consumer just wants a lower price.

?I think we?re slowly, gradually coming to this realization that consumers aren?t going to spend what they did in the last 10 to 15 years,? he said.

Source: http://bottomline.msnbc.msn.com/_news/2012/01/24/10226938-target-tries-to-fight-off-online-retailers

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