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Target Preps for Big Holiday Selling Consumer Electronics

October 27, 2011

Target, according to a Reuters report, is looking for a big Christmas selling video games and gadgets, such as tablet devices, to boost its consumer electronics business.

"Within gaming, it's been a pretty soft industry over the course of the year, but I do think that given the slate of games this fall we should be set up to have a really strong holiday," Nik Nayar, Target's vice president of electronics and gaming, told Reuters.

Unfortunately for Target, it's got a few other challenges ahead of it, as well. For one, there is the continuing problem of keeping its site online. Target.com went offline this week for about two-and-a-half hours. This followed several other outages since the company relaunched its site recently.

Another significant issue, according to a Wall Street Journal report, is that Target and other retailers are going to have some trouble prying away sales of e-readers and tablets from Amazon, Apple and Barnes & Noble this holiday season.

"Some of these tablets are essentially house brands for other retailers," Shawn DuBravac, chief economist for the Consumer Electronics Association (CEA), told the Journal. "It makes for a very tough environment for traditional electronics retailers."

Target also faces some serious price competition for the holidays. Walmart's "Christmas Guarantee" contains the pledge that it will honor the lowest price on the market for any item it sells between Nov. 1 up to Dec. 25, regardless of when it was purchased in one of its stores or on Walmart.com.

According to the CEA, the average consumer will spend $246 on consumer electronics this year. That's about one-third of all holiday purchases per person.

"Consumer electronics continue to play a leading role in holiday shopping, with consumer tech clearly being a go-to category for holiday gift spending," said Shawn DuBravac, CEA's chief economist and director of research, in a press release. "After months of depressed consumer confidence, individuals are indicating they plan to spend this holiday and are looking for technology, as more adults will buy consumer electronics as a gift this year as compared to last year."

FINANCIALS:     [NYSE:TGT]

Discussion Questions:

Discussion Questions: What do you think are the biggest challenges facing Target's consumer electronics business this holiday selling season? What should it do to win the competitive battle?

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:

Do you think it likely or unlikely that Target will grow its consumer electronics sales this holiday season?

Comments:

Target has four main challenges facing its consumer electronics business this holiday season:
1) Amazon: The new Kindle Fire, exceptional customer experience, overall value proposition and lack of sales tax makes it tough to beat. Always. Holiday is no exception.
2) Walmart: It's low price guarantee is going to make it tough for TGT among price shoppers.
3) Profitability: Given the two items above and things like TGT's additional 5% savings tied to its card use, TGT may realize holiday CE sales but in a low margin category like CE, TGT will have a tough time making money.
4) Best Buy: While I continue to believe Best Buy has lost its way and a good bit of its value proposition, they are still a leader in CE and, as a single source within CE, formidable.

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Phil Rubin, CEO, rDialogue

I agree that electronics sales will be the industry leader this holiday season. Here is what I don't know: what is Target going to do to entice buyers, including me, to buy from them as opposed to the industry leaders such as Amazon or even a B&N? Gee, they can't even keep their website up. That does not make purchasing electronics from them a comfortable feeling.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

The biggest challenge that Target faces is that it isn't a destination. What differentiates Target from Amazon, Walmart, or Best Buy? It is an accidental business. Coming right behind is Target's lack of multi-channel integration, as made abundantly clear by its recent site crashes. Consumer electronics, more than any other category, relies on "endless aisle" assortments and site-to-store capabilities. Target's gaming touch screen kiosks seemed to point to a renewed focus on in-store differentiation but they now look like a one-off in need of a second act.

I don't see Target pulling this together by holiday. It's already here.

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Carol Spieckerman, President, newmarketbuilders

The biggest challenge Target faces in growing its electronic sales is that it is not top-of-mind as a place to buy them from, either from brick and mortar or the internet standpoint. To gain a considerably larger share of brick and mortar world would mean Target would have to significantly alter the space devoted to electronics within its stores, better train its staff in this area, etc. Further, as the article points out, e-readers are still a big item and the top ones are owned by other retailers.

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Steve Montgomery, President, b2b Solutions, LLC

Why focus on a low margin, commodity category? Target expects consumer electronics to be hot items and bring consumers into its stores. To successfully do this, Target needs to have the items in stock (a consistent problem for Target), at a great price (Target's prices can frequently be beaten online) and knowledgeable sales associates (another Target weakness).

Why should consumers go to Target.com, when there are so many other sites that carry a better selection of products, have better prices and offer better customer service?

Unless Target can overcome these obstacles, I don't see them dominating consumer electronics this holiday season.

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Max Goldberg, President, Max Goldberg & Associates

Target and other retailers will have their deepest challenges this season predicting and forecasting accurate sell-through numbers of consumer electronics on a SKU by SKU basis. We are in a time right now where the CE environment has gone in many different directions all at once and trends are not as predictable as they have been in years past.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

Target likely faces the same issues as Best Buy: First, how to entice people to buy HDTVs when the market is saturated. Second, how to sell tablets other than the iPad. Regardless of the competitive landscape (which is real), the bottom line is still content-driven.

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Dick Seesel, Principal, Retailing In Focus LLC

In the past, I've noted that Target has always had lean allocation when it comes to hardware. If they truly want to remain competitive with Toys "R" Us and Walmart, they are going to have to buy big (or should have already). Right now, video gaming is soft in terms of titles and there isn't any new hardware coming out before season so they are going to have to push the regular units with special promotions and bundles. Target should focus on providing exclusive kits for Wii, PS3 and Xbox while offering competitive prices on DS. I don't even know what to say about PSP. Tablets will also be huge this year as this is the first major season with all brands rolling out a unit. Again, it's all about allocation for Target. Stock them and they will sell. Target could offer specific accessory packages for tablets that are high margin and high velocity. Everyone needs a skin and Bluetooth, right?

Doron Levy, President, TheMortgageMachine.ca

Target was one of the places that I went to on Black Friday last year, and I have to say, I was impressed then -- and last year ended up being a very good year for electronics. So while the competitive market in CE has gotten a little strange, with B&N and Amazon taking a place amongst hardware manufacturers, I don't think TGT has any greater challenge than they did last year, really.

I still struggle with a larger question: do big Black Friday deals really pay off for retailers? I wonder if the structure of shopping has changed to the point where holiday deals & steals just create cherry-picking opportunities or if they really do get consumers to spend more money once inside a store. Retailers continue to make grand statements like TGT's and WMT's so far this year, but their ability to make money can't be dependent on these statements so much as on their ability to translate that into additional spend once the shopper shows up -- can it?

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Nikki Baird, Managing Partner, RSR Research

Coincidentally, this article is coming up after yesterday's paper on Barnes & Noble trying to expand online and get a piece of Amazon's business. So to summarize, BN wants a piece of Amazon and Target wants a piece of BN, Amazon and Apple. Amazon just wants everything from everyone (watch how they are now going to drive a few publishers and literary agents out of business). Besides its endless inventory, the key strengths of Amazon are relevance (to its users) and a website platform that works.

Dr. Emmanuel Probst, Vice President, Retail, Empathica

The biggest challenge in consumer electronics is MAP pricing. Most retailers are at a competitive disadvantage when the leaders in the space have a two week head start on lower pricing. Price Match type guarantees are the new buzz and serve as a "hedge" against this disadvantage and/or future markdowns. The key is assurance and automated return of price differential leveraging customer profile/contact info. Make it easy on the high value customer to "get their money back." They will in turn demonstrate appreciation by telling their friends and using those funds on accessories, music and more. Best Buy typically leads on price advantage. Target needs to get its mojo back -- who thinks their television advertising is as breakthrough and fun as it was 2-3 years ago? CE is a big traffic draw, but Apparel is where it's at for Holiday 2011 -- the margins alone are what will drive EBITDA results.

David Slavick, Director, Loyalty & Retention, FTD.com

Price and availability, price and availability and price and availability. Target already has a large share of wallet and eyeballs...now it simply needs to price its products BETTER than its competitors, make them available system-wide and let its consumers know that they are available...oh; year, and price and availability....

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Kai Clarke, CEO, American Retail Consultants

Target has a 45 day return policy, Apple's is 14. Buy from Target with loyalty card and you can get 5% discount -- that would be $25 for an iPad. I'd say while electronics is a tough place to play, Target is not without arrows in their quiver to be competitive to the less geeky squad of shoppers out there -- moms.

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Bob Phibbs, President/CEO, The Retail Doctor

My colleagues have accurately assessed Target's issues.

However, Target need only convert a relatively small percent of the thousands of mothers already shopping in their stores every day to be successful. Time remains currency. If it's easy to buy (we already know they'll be busy) then Target will earn their share.

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Christopher P. Ramey, President, Affluent Insights

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