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[23 comments]

Target Protects Brick & Mortar Turf

December 19, 2013

Beyoncé surprised the music industry last Friday by releasing her new album exclusively on iTunes without any pre-release announcement, shattering digital records with 617,000 copies sold in three days. But the surprise fallout: Target won't be selling the album.

"At Target we focus on offering our guests a wide assortment of physical CDs, and when a new album is available digitally before it is available physically, it impacts demand and sales projections," Target said in a statement released to media outlets.

The release continued, "While there are many aspects that contribute to our approach and we have appreciated partnering with Beyoncé in the past, we are primarily focused on offering CDs that will be available in a physical format at the same time as all other formats. At this time, Target will not be carrying Beyoncé's new self-titled album 'Beyoncé.'"

On her last album released in 2011, "4," Target received an exclusive release with six additional tracks. She also previously starred in a TV commercial for the retailer. Target similarly last year declined to sell R&B singer Frank Ocean's blockbuster album, "Channel Orange," after its week-early release on iTunes.

The pop diva's fifth album, which reaches physical stores on Friday, is expected to top the Billboard album chart this week.

Billboard estimates that iTunes, owned by Apple, is the largest seller of music in the U.S., with about a 41 percent share of the market in 2012. Walmart has 10 percent, followed by Amazon, 9 percent, and Target, 5 percent. Walmart plans to sell the album, with a spokesman telling Billboard the chain was "happy to be able to carry her album and support all physical music."

Speaking to ABC News, Can Erbil, an economics professor at Boston College, said Target is "upset and maybe a little jealous" about the market clout of iTunes.

"The whole saga is a very interesting marketing reality show starring Beyoncé, iTunes and Target," said Mr. Erbil. "Beyoncé's move is new, but the motivation behind it seems to be good old microeconomic theory, flexing its market power muscles."

FINANCIALS:     [NYSE:TGT] [ NASDAQ:AAPL ]

Discussion Questions:

Is Target making the right decision with its hardline stance against early album releases on iTunes? How do you weigh such preferential distribution battles against the possibility of missed sales and disappointed customers? Are more digital versus physical distribution skirmishes coming in the future?

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:

Did Target go too far in its decision not to sell Beyoncé's new album due to its early release on iTunes?

Comments:

If you're in the business of selling pop music on CDs, is it smart to abandon the hottest new release on the market two weeks before Christmas? I'm not so sure that Target is doing itself any favors besides the point that it's trying to make. Driving sales of wanted merchandise ought to be job #1.

The unintended consequence is that iTunes and other digital sources of music will keep gaining share at the expense of brick-and-mortar stores dependent on a few "exclusive tracks" to sustain an outmoded technology.

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Dick Seesel, Principal, Retailing In Focus LLC

Target can't seem to get out of its own way. First a damaging story about out-of-stocks and now a hissy fit about Beyonce. If Target does not have a consumer advocate on staff, they should get one, soon.

Artists and music companies can make more money if they avoid the cost of manufacturing and distributing a physical disk. Consumers are buying most of their music online, forsaking physical disks. I'm certain Beyonce and her label carefully considered every option before opting for digital distribution. This is the way of the future.

All Target has done is hurt itself by once again by not giving its customers what they want, when they want it.

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Max Goldberg, President, Max Goldberg & Associates

Target is finally feeling what we independents have dealt with for years, and now they are upset. Even the big stores are now being passed over with technology, and more of this will happen in the future.

Brick and mortar stores cannot outdo the iTunes concept, as digital downloading is crystal clear and easy to transfer. Preferential treatment for stores is fading away, and all of us in retail must deal with the prospect of lost sales, since online ordering for downloads, and other items are made easier than ever to purchase.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

I don't see the upside for Target. It is unlikely their actions will stem the tide of early album releases. It's a new approach for the music industry and if it's successful for Beyonce and others, it will continue.

I agree with Dick's observation that Target will simply lose the potential of in-store sales of the CD as well as the additional product purchases the CD shoppers would have made while in Target.

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Joan Treistman, President, The Treistman Group LLC

It sounds as if Target had a little snit.

iTunes isn't going away anytime soon, nor are other digital download sources, like Amazon. Despite this, physical CD sales are still significant, and Target is going to wish it had stocked this album. Perhaps Target is considering getting out of the CD business altogether; that seems like the most logical explanation for not carrying the fourth quarter's hottest release.

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Cathy Hotka, Principal, Cathy Hotka & Associates

This decision borders on bizarre.

Once upon a time the top executives of the music industry popped the corks of very expensive champagne to celebrate their win in the suit against Napster. Meanwhile, Steve Jobs saw that people like to download music to their computers. Hmmm. Today, Apple is the biggest seller of music in the world.

This album is the biggest album in the country and Target has chosen to send THEIR customers to Walmart, Amazon, et al, if those customers want the physical CD.

Certainly not being customer centric. Certainly not being progressive. Certainly not reading the tea leaves.

With this type of attitude, maybe it is best for Target to simply close their music sections and adapt the real estate to something they are more comfortable with.

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Gene Detroyer, Professor, Independent

Target seems to be the news name of the day; none of it being good for business at the end of the holiday shopping season. Not the brightest decision they could have made, considering the negative fallout from the credit card compromise.

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

Target loses. The only ones who feel good about this are the folks at Target who made this call. Don't think customers will be that disappointed - the CD will be ubiquitous.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

With 40 million shoppers waking up to find their information was breached while shopping at Target, I think this is the least of their problems.

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Bob Phibbs, President/CEO, The Retail Doctor

Let me understand this: It is okay in Target's eyes to have an exclusive item (i.e. CDs in the past, extra cuts on CDs that others do not) but they lash out like a child or a bully when something does not feel "fair" to them? The perception of their actions by their customers should be their first thought when contemplating this type of action.

A retailer should respond with its own point of difference and exploit it, not react to a competitor's program, in many people's view, inappropriately.

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J. Peter Deeb, Managing Partner, Deeb MacDonald & Associates, L.L.C.

Beyonce's strategy with this release, in solely leveraging social media and word-of-mouth marketing (and of course, the media's coverage of it) illustrates the tipping point for the most successful artists taking even more control of their brand.

Target's response is puzzling, given what will surely be huge demand for the physical album in CD format, a week before Christmas. My take is Target comes out on the short end of a short-sighted position.

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Jeff Hall, President, Second To None

Target needs to understand and accept that in the New World Order, that iTunes is the dog and that they're the tail. If iTunes wants to release the album digitally before it's made available physically, that's what iTunes will get. And Target shoppers who want the CD will simply buy it elsewhere. Target can pitch their fit, but Walmart will pick up the business.

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Ted Hurlbut, Principal, Hurlbut & Associates

I don't see this as a physical vs. digital battle so much as Target refusing to play when they aren't getting first dibs. They have a point. As the article pointed out, the biggest bang happens within the first day or two (hence even Walmart's willingness to grab super short-term, front-end exclusives with the likes of Justin Bieber).

On top of that, although Target no doubt does a respectable business in physical CDs or they wouldn't be in the business, it isn't exactly a destination for music (how many people think "I must run to Target!" when a major music release happens?).

The impact will be negligible to nil.

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Carol Spieckerman, President, newmarketbuilders

There is much to be said in favor of refusing to take part in what may have appeared to be the scraps offering from a vendor. That is to say that perhaps Target felt a little bit abandoned and insulted by their offering in this venture. If a company wants to remain in front or move to the front of a market, it stands to reason that positioning and product in demand are essentials for success that are superseded by planning and negotiating with future business relations in contractual content and consenting mutual awareness.

What is more disappointing than the result we see in this new product offering and Target's failure to participate is the way in which the company was left out. I am confident that there is enough animosity on both sides to create a vindictive approach to future business endevours from both parties.

Additionally, vendors may see Target as owning an all-or-nothing business plan and at the same time retailers, both B&M and e-commerce, may see Beyonce and company in the same light. It is negotiation failures like we see here that end in critical impasses and therefore compel the market to approach the participants with caution or simply not at all. Smart investors will recognize this and adjust their portfolio accordingly.

This is a very clear observation of how in a business negotiation everyone must win for success to be assured or everyone will lose as in the company, the employee and of course the consumer.

'gjarnoldjr'

Oh, Target! Don't get your nose in a snit and take it out on your customers. That never works out well!

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

"iTunes, owned by Apple, is the largest seller of music in the U.S., with about a 41 percent share of the market in 2012. Walmart has 10 percent...."

Mostly what this incident points out is how irrelevant B&M is becoming to music sales ... period.

'notcom'

Challenging iTunes for music distribution turf is more dangerous than taking on a nun in a ruler smackdown.

Inside Target, they're concerned with getting their "share" of the new Beyonce album, which is understandable if a bit naive given their ongoing relationship with the artist. Slowly but surely, recording artists are regaining control of their work product after adjusting to the new music purchase paradigm. Good for them.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Really? A CD? Come on folks. A Beyonce album does not Target make. It makes no difference what their position has been in the past. Physical distribution of music is on the wane. It will likely disappear. Or it will diminish to a discount bin with CDs, cassette tapes, and 8-Tracks from the 70s. This is a controversy without a controversy.

There are no disappointed customers. Target is likely not top of mind as a music CD destination in the first place. It is certainly the last thing I would be thinking of when Target is mentioned.

They have bigger issues today with 40 million disappointed customers than any CD could possibly cause.

'Scanner'

In isolation, this doesn't seem like it will have a massive impact on holiday sales at Target.

It certainly appears to be a very tactical decision and one that doesn't seem to have considered customer needs, individual customer impacts, or the brand message this action delivers.

Maybe behind the scenes there is great insight and strategy behind this, but it's not obvious!

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

They did a proactive move and I agree with the decision.

Kate Blake, Social Media Manager, Take Five with Kate Blake

This appears to be a silly and petulant move by Target. Of course, none of us can know the back story. But regardless, it is not a customer-centric decision. At a 5% market share, Target does not have the clout to force major artist distribution decisions. Bad move.

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

I disagree with Target's reaction. Yes, I think it is a spurned lover reaction. Whatever happened to the customer during this process? Target is telling its customers that they will need to purchase the new Beyonce CD somewhere else. I don't see any economic benefit to Target and certainly none re-downs to Target's customers by Target's decision.

This is a new marketing world. Rather than have such skirmishes, marketers need to work together to better serve today's savvy customers.

Don't let ego dictate your marketing strategy.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

Since most music lovers have gone digital, I think Target won't lose too many sales over Beyonce's CD. Sure Target would have evaluated the profits and the cost of distribution of the same. If the music is not available exclusively, or for the first time at Target, the sales wouldn't be as high.

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Shilpa Rao, Practice Head - Merchandising, Tata Consultancy Services

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