January 23, 2012, 5:05 PM

Target takes aim at web-only retailers

The retail chain asks its suppliers to help defend against sales lost to e-retailers.

Lead Photo

Target Corp. has asked some of its suppliers to renegotiate their agreements with the retailer so the chain can price best-selling products competitively with online-only retailers without cutting into Target’s margins and to make available to Target products that aren’t available from web retailers. A letter sent to some Target suppliers earlier this month says Target doesn’t want its stores to become showrooms for e-retailers that may sell the same products for less.

“We understand and appreciate consumers’ desire to find the best price, and we are absolutely committed to delivering the differentiated, high-quality merchandise Target is known for at low prices,” wrote Target’s president and CEO Gregg Steinhafel and executive vice president of merchandising Kathee Tesija in the letter, which was obtained and excerpted in a research note by Citigroup Global Markets Inc., an investment advisory firm. “What we aren’t willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices.” The letter also suggested that Target and suppliers might develop membership- or subscription-based pricing models for products sold in stores to compete with similar programs offered by some online retailers. The letter was sent to Target’s “most important vendor partners,” according to the letter, but it is unclear which specific suppliers that includes.

The letter cited consumers’ increasing use of technology as a reason why it was asking for pricing and product improvements.  “[Consumers] want complete transparency on price, and are using technology to find the best deals regardless of retailer or channel,” the letter said. A Target spokeswoman declined to elaborate on how the retailer will work with suppliers on the issues but says they will work together. “Target 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,” she says.

Such devices as web-enabled mobile phones make it easy for consumers to check prices for products available on the Internet and at other retailers while standing in the aisle of a Target store. Consumer electronics shopping and review site Retrevo.com, in a survey fielded this fall, found that 58% of smartphone owners have checked out electronics in a store but then bought a product elsewhere online. 41% have checked out shoes in a store but then bought elsewhere online, 39% did the same for apparel, 23% for appliances, 22% for sporting gear and 19% for home and garden products.

Web-only retailers like Amazon.com Inc., No. 1 in Internet Retailer’s Top 500 Guide, are making it easy for smartphone users to check web prices on the go. Amazon’s free Price Check app lets consumers check Amazon’s price for a product they are looking at in a store. In December, Amazon incurred the wrath of some retail chain executives by offering consumers an additional $5 off the Amazon price if they tried the app by scanning a bar code, presumably in a store.

Retailers with store operations, meanwhile, are trying to turn the showroom concept to their advantage. In November, Wal-Mart Stores Inc.’s e-retail arm opened two Walmart.com stores in malls in Southern California to act as showrooms. The Walmart.com stores featured popular products for consumers to touch and test; a shopper who wanted to buy was directed to computer kiosks where she could purchase the item from Walmart.com. Consumers could not buy the displayed products in the store.

Walmart is No. 6 in Internet Retailer’s Top 500 Guide; Target is No. 22. Both retailers have policies that say stores do not match prices found online, even those listed on their own e-commerce sites.

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