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[13 comments]

Target and Amazon to Part Ways in 2011

August 10, 2009

By George Anderson

Target believes it has gone as far online as it can with Amazon.com and has announced that prior to the 2011 holiday it will build and manage the brand new Target.com all on its own.

"Amazon has been an important strategic partner since we re-launched Target.com in 2001, and the strength of Amazon's technology and fulfillment services has been a contributing factor in Target.com's success," said Steve Eastman, president, Target.com, in a press release last Friday. "However, to deliver a customized multi-channel experience for Target's guests, we believe it is in Target's best interest going forward to assume full control over the design and management of Target's e-commerce technology platform, fulfillment and guest services operations."

Target's move follows others including Borders and Toys "R" Us that have chosen to bring their online operations in-house.

"There's a lot more at stake now," Scott Silverman, executive director of Shop.org, told the Minneapolis Star Tribune. "It's a boardroom priority figuring out the role of the Internet in your retail business, where 10 years ago it wasn't."

It wasn't immediately clear how big a hit losing Target would mean for Amazon, although at least one analyst, according to a Barron's report, said the effect would be negligible.

In a letter to clients, Imran Khan of J.P. Morgan wrote, "Rolling out a platform to fulfill the sales of a top-20 e-commerce site is likely to hit a few bumps in the road and Amazon's market share could see benefits if Target.com has any difficulties providing a top-notch customer service experience."

Discussion Questions: What will the Target/Amazon split mean for each company? How much will Target benefit from or be hurt by going it alone with Target.com in 2011?

FINANCIALS:     [NYSE:TGT] [NASDAQ:AMZN]

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much will Target benefit from or be hurt by going it alone with Target.com in 2011?

Comments:

Of course it's too early to tell before the sales numbers are in--and in this economy there will be a lot of noise in those numbers anyway--but it seems like a poor strategy to abandon what on the surface is being billed as a successful partnership. On the other hand, if Target is going to own its own brand, the break had to come sooner or later.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Surely Target is big enough to devote the resources required to drive its own website instead of outsourcing it. There is a volume risk, however, in losing some of the "product placement" linkage on the Amazon site itself. As an online shopper, I have found the target.com online experience not quite consistent with the bricks-and-mortar store, so this becomes a real opportunity for Target...as long as it puts the effort behind a "best in class" site.

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Dick Seesel, Principal, Retailing In Focus LLC

Target has a history of "working" with vendors to learn best practices of a certain facet of their business (i.e. variable data print, loyalty programs and private label credit card practices) and then once they have learned the business practice they bring it in house and run it internally. Hopefully they have paid attention to the challenges in this transition and this works well for them.

'Loyalty360'

Target needs to go it alone. They need to control their online destiny. But independence comes with risks. Will Target be able to offer the same quality online shopping experience as Amazon? Will Target inspire the same amount of consumer trust as Amazon?

The breakup should not hurt either Target or Amazon, provided that Target makes the experience seamless for consumers. In the end, Target will control its online brand and Amazon, while loosing a major online retailer, will continue to thrive through selection, customer service and innovation.

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Max Goldberg, President, Max Goldberg & Associates

While Target might have the financial resources to do this on their own, money can't necessarily purchase knowledge. There is not better company in ecommerce than Amazon, not just from the customer experience point of view, but the information that they are able to gleam from their customers, and their respective buying habits. Target is going to lose this, and it will take many, many years for them to replicate these analytics.

It seems to me that this is the wrong time for Target to be doing this. Their same-store sales numbers are down, their profitability is down, they have just had a battle with a major shareholder. Why do this now? I think we will find that over time, Target will start to report that "their online sales missed their target, but it is only a short-term blip." I fear that the short term will turn into a long-term debacle.

I'm not a fan of this move.

Joel Warady, Chief Marketing Officer, Enjoy Life Foods

Mr. Eastman sums it up well in the first paragraph. It's all about control. Currently, Target.com is pretty Amazonish and that works for Amazon and its customers. Target needs to grow its online business and must reach out to their core customer who may not be as web savvy as your average Amazon customer. The only way Target can deliver their message online is to design a site that is reflective of the 'marketing flow' at the store level. Build something that is recognizable and more customers will be apt to shop and navigate if they are in familiar surroundings.

I say it's good move for Target and even though building a site from the ground up is really expensive, they need another sales vehicle for their lines. 2011 is pretty far off in my opinion. I'm thinking a weak BTS/Xmas run through this year. If I were them, I would execute now.

And as for Amazon, I'm sure they will come up with some other clever way to fill the void. Can I buy a Camaro on Amazon yet?

Doron Levy, President, TheMortgageMachine.ca

I have confidence that Target will be able to built its own online brand. But I'd go back to the bulls-eye....

Len Lewis, President, Lewis Communications, Inc.

Maybe working through Amazon makes cross-channel marketing difficult so a separation of the ways might have been inevitable. The pressure for Target, now, is to make sure that the new website functions flawlessly, is truly integrated with the rest of the company, and makes cross-channel behavior effortless. Target has a big challenge ahead of them.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Echoing loyalty360's point, Target (and to be fair, quite a few other retailers) has a history of letting others build branding, technology and product platforms then taking them over once the kinks are worked out and/or shoppers respond. I have a new posting on my blog that points out a few take-aways for suppliers. http://www.nmbblog.com

There has been some speculation that Target may enlist the aid of a non-competing third party platform such as GSI Commerce; however, I think that when Target says "in-house" they mean total control.

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Carol Spieckerman, President, newmarketbuilders

It's important to see that online and offline shopping will be an increasingly seamless activity. And this just doesn't mean "buy it online; and pick it up at the store." You may actually buy it online, while in the bricks and mortar store, using your phone, PDA or other device, and have it delivered to home. Where and how it is delivered is simply an option, not a definition of the experience. In the same way, where and how the purchase is made is just an option, not a definition of the purchase process. Sometimes people prefer the privacy and comfort of home. Sometimes in really hot weather, they prefer the comfort of the air-conditioned marketplace. Ultimately, in the mind of the shopper, it will be a continuum.

The point of all this is that the bricks and mortar store is undergoing and will further undergo "Amazonification" in ways beyond the scope of this discussion. Partnership makes sense for smaller retailers. Merger would make more sense for Walmart, Tesco or Carrefour.

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

Great move by Target.

The key here is multichannel. Amazon is an Internet pureplay, and its platform was never designed to play nicely with retail store systems, nor will Amazon invest the resources to make it so without more retail partners on the roster. To have a truly holistic view of the customer across channels, and to really innovate with ecommerce, Target needs control of its own show. Target needs to not only build a solid commerce platform but to integrate it with all the key systems that can create this holistic view--so customer interactions in-store, through kiosks and digital signage, mobile devices and online can be reconciled, and Target can offer the customer the benefits of a consistent experience across channels.

Linda Bustos, Director of Ecommerce Research, GetElastic.com

Target is a multi-billion dollar retailer that is outsourcing its online operations? The costs, communication issues, lack of controls, delays in logistics, not to speak of the customer service or allowing all of the systems to openly communicate between these organizations have to create an expensive and customer-losing nightmare.

Target needs to sever the cord between these two organizations as soon as possible. Amazon has their own organization, logistics and customer care issues it needs to focus on, while Target should have this entire portion of their business in-house, and under their Target banner. That it still exists is a question many shareholders need to be asking management about!

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Kai Clarke, President, Kowa Optimed, Inc.

Americans have a penchant for not sharing. Everyone on the block has to have a riding lawn mower when we could probably pool one across several families.

American brands have trouble sharing as well. I wonder if Target's decisioning process was truly based on a set of objectives that will yield strategic advantage over time, or if it was just the politic fancy of management to "have our own" site and move away from the Amazon framework.

That is the interesting question that I would like to see answered and invite anyone in the know to share their thoughts.

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Bill Hanifin, Managing Director, Hanifin Loyalty LLC

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