Should Amazon have Target in its acquisition sights?

Discussion
Photo: Target
Jan 03, 2018
George Anderson

It’s not unusual for organizations of all types to release prediction papers around this time of year. One that has drawn a lot of attention is the prediction by Loup Ventures, a technology venture fund, that Amazon.com will acquire Target before 2018 is complete.

Loup asserts that Target would make an ideal acquisition for Amazon because the two companies focus on the same primary demographic (moms with kids) and because the chain doesn’t operate an unwieldy number of stores.

On the mom front, Loup points to how Amazon has used its Prime program to target promotions to female heads of households. It has also added “kid-friendly content” to Prime Video with the goal of adding to its numbers of annual subscribers.

While Amazon’s acquisition of Whole Foods made clear that it sees a role for brick and mortar stores in its future, the 470 locations it picked up are a tiny fraction of Walmart’s total of nearly 11,700 worldwide. Adding Target to Whole Foods would bring Amazon’s store count to around 2,300.

One potential stumbling block could be Washington politics. President Trump has taken repeated shots at Amazon and Jeff Bezos, its founder and CEO, who owns The Washington Post. Mr. Trump objects to the paper’s coverage of his campaign and administration. Last week, the President tweeted that the U.S. Postal Service was losing billions annually because it charges “Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!”

While an Amazon bid for Target would invite scrutiny, Loup doesn’t believe there would be legal grounds to block the deal. The combined companies would still be much smaller than Walmart, which has a 23 percent share of market (including grocery) when you look at the top 18 retailers in the U.S. Amazon and Target combined have about a 13 percent share.

There have been other predictions about potential Amazon targets including Kohl’s, which tested Amazon smart home shops in 10 stores in Chicago and Los Angeles. The department store also accepted returns for Amazon at 82 locations in those markets.

DISCUSSION QUESTIONS: Do you think a Target acquisition would make sense for Amazon? How would such a deal benefit both companies? What would be the broader impact on other retailers, vendors and consumers?

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31 Comments on "Should Amazon have Target in its acquisition sights?"


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Jon Polin
BrainTrust

Even mighty Amazon, who accomplishes more in a day than most retailers accomplish in a year, has their hands full now with their Whole Foods integration specifically and with revamping their grocery strategy more broadly, so I’m skeptical that they take on another massive retail acquisition just yet. That being said, as Amazon sees increased benefit on a national brick-and-mortar footprint, Target is probably the best acquisition candidate to advance that agenda.

Charles Dimov
BrainTrust

Target would a be gem to truly accelerate Amazon’s omnichannel play. Since in-store purchases are still about 90 percent of retail sales, Amazon is in effect playing catch-up to Walmart’s huge omnichannel play.

Art Suriano
BrainTrust

At this time, I don’t know how real the possibility is but if it did happen there would be tremendous advantages. Amazon understands that they can only reach their full potential by adding brick-and-mortar stores. It’s easier to purchase an established company as they did with Whole Foods than opening stores one at a time as they are doing with the Amazon Books. So buying Target would put Amazon in a significant place as a brick-and-mortar retailer. Combined with the many services Amazon already offers, they would stand aside from their competition. It would truly be THE omnichannel experience in every imaginable way. But as of now, this is just a prediction from one analyst — and how many things get predicted that never happen?

Dr. Stephen Needel
BrainTrust

I’m sure there’s a better reason than what Loup Ventures offers as to why Amazon might be interested in Target, because there wasn’t much there. Of course, it’s also their boldest prediction, they say, and the one least likely to come true. I don’t see Target adding much to the Amazon game, and I have a hard time believing Amazon wants the baggage associated with Target. Walmart should love the distraction acquiring Target would provide.

Phil Chang
BrainTrust

Target has some very interesting pieces that would align with Amazon. Their strong private label/own-brand presence aligns with Amazon’s portfolio, and their ability to feature pop-ups and exclusive brands is something that would help Amazon dial into local markets. Target’s pricing strategy of being “second lowest” behind Walmart helps Amazon continue to pressure Walmart from a commodity standpoint as well.

Adding Target to Amazon’s portfolio would give them a good/better/best strategy with Amazon, Whole Foods and Target (you decide which one is which) that puts a lot of pressure on retailers and vendors. As do all things in the new world of retail, this benefits the consumer!

Dr. Stephen Needel
BrainTrust

Phil — I would disagree with you. Target’s minimalist approach to assortment is antithetical to Amazon’s long tail approach to business. If Amazon were to acquire Target, they would have to gut Target management.

Phil Chang
BrainTrust

Hey Stephen, I actually wasn’t looking at implementation. I was merely looking at the pieces that would an acquisition attractive. I don’t disagree with you — Amazon’s online approach would take some work to adopt in store and there are many facets of what they do that wouldn’t work without significant effort in Target stores.

Target’s management structure is completely opposite to the Amazon structure, but I don’t think acquisitions are built based on management structure, but the assets that are profitable.

Bob Amster
BrainTrust

Is there an natural synergy here or are these predictors forcing an idea that doesn’t have much merit?

Sky Rota
BrainTrust
17 days 9 hours ago

Yes, a Target acquisition makes perfect sense for Amazon! They would be able to have places for distribution and Target is the perfect spot for this. The benefit would be Target gets paid billions of dollars and Amazon gets the distribution locations they are in need of. The Whole Foods acquisition was a waste in my opinion. Target is the right move. At the end of the day there is sadly only going to be the few big players out there. Walmart will still be standing, but I don’t see a good outcome like for a Kohl’s or other smaller stores. Sorry.

Carol Spieckerman
BrainTrust

Target has only recently, and barely, departed from its insular past — looking outside for leadership, dabbling in acquisitions … and it has made bold-ish moves on the branding front through a massive revamp of its proprietary brand portfolio, a focus that nonetheless falls squarely in Target’s comfort zone. Will any of this move the needle and make Target a true contender in years to come, particularly as Walmart shows its teeth as never before? Does a Target acquisition make sense for Amazon? Sure. Manageable-but-meaningful stores count, pharmacy partnership via CVS, women/moms, loyalty … but more importantly, it may also be Target’s most sensible lifeline.

Neil Saunders
BrainTrust
There is logic to an Amazon-Target deal, not least because both players share customers and are operating across multiple categories. However, for any acquisition to work, Target needs to bring something to Amazon that Amazon cannot achieve itself. That discounts the need to grow revenue, for as much as Target would bolster Amazon’s top line, Amazon can grow organically without resorting to expensive acquisitions. The above noted, there are certain categories where Target may prove useful in helping Amazon to grow. Food is one — as broken as Target’s food offer is, it remains sizeable and is something Amazon can help to fix. Fashion is another — Target is starting to see success with its new own-label products; Amazon could add to this and use stores to showcase its ranges. Home and furniture are also on Amazon’s radar, and this is a category where Target can add value. As helpful as Target might be in allowing Amazon to accelerate growth in certain sectors, an acquisition would be a costly way to achieve this, so this… Read more »
Adrian Weidmann
BrainTrust

Amazon is doing so many things right, I can’t imagine a scenario in which Amazon would want to inherit an “analog” retailer with all of the history and infrastructural challenges of Target. There is plenty of retail real estate available out there. If and when Amazon feels a need to implement another brick-and-mortar presence, they can implement the best-of-breed analog and digital practices from the ground up. I could think of several more interesting “Targets.”

Zel Bianco
BrainTrust

I think it does make sense, especially in light of yesterday’s discussion on Walmart targeting a higher demographic. Amazon with Target will deliver that goal much more effectively than Walmart can, at least in the eyes of those shoppers that feel Target is much more upscale (relatively speaking) than Walmart. The logistical advantages that other commentators have already highlighted would be a big plus as well.

Nikki Baird
BrainTrust

Yeah, I see this as click-bait speculation. I still don’t believe that Amazon bought Whole Foods for the stores. They bought the company for the grocery experience and distribution. Buying Target doesn’t do much, if anything, to help that along. Where Amazon needs a boost is in fashion, and Target comes with too much other baggage for it to be valuable as a fashion acquisition. Kohl’s makes much more sense, when looking in that light, but even then, I agree with other comments that Amazon has to chew and swallow before it can really take another bite, of anything else.

David Livingston
Guest
17 days 9 hours ago

Target desperately needs rescued. After their big failure in Canada and grocery being DOA 250 from their entrance, it’s time to replace their ineffectual management with cutthroat capitalists that will push Target into the modern era.

Seth Nagle
BrainTrust

It might look good on paper but the reality is that if Amazon who just acquired Whole Foods would then acquire Target after they just acquired Shipt, it would be a nightmare of logistics and Amazon would just be asking for trouble with their consumer base. Also if there is one thing we’ve learned from the GE fiasco it is that just because you can buy it doesn’t mean you should.

Richard Layman
Guest
17 days 8 hours ago

Which GE fiasco?

Seth Nagle
BrainTrust

I was referencing GE’s M&A such as the $9.5 billion acquisition of Alstom’s power business, having to merge their oil and gas properties with Baker Hughes /becoming the majority stake.

Joy Chen
BrainTrust

Target’s acquisition by Amazon would be a great strategic fit for both companies. In addition to the similar consumer target and the obvious online/brick-and-mortar combination, the company competencies will be benefit each side. For example, Target’s personal care, household and lifestyle offerings would provide more leverage to Amazon while they are trying to build out that part of their business. The combination of Target and Amazon would be another step to consolidation of the retail environment.

Gene Detroyer
BrainTrust

There is nothing that Target can give Amazon that Amazon can’t do all by themselves, and most of those things Amazon wouldn’t want to do.

Roy White
BrainTrust

Amazon should not have Target in its sights at this point. Even for Amazon, a rapid pace of acquisitions can be risky. Target is a $70 billion in sales company with over 1,800 stores, and it needs work. Earnings are declining and corporate sales growth is marginal. Amazon is still figuring out Whole Foods and what to do with it; it has only owned it for four or five months; and Whole Foods is a lot smaller than Target, with 470 stores and $16 billion in sales. If and when Amazon gets a good handle on brick-and-mortar retailing and how to integrate it into digital and online selling, then maybe Target should be in the cross hairs.

Dick Seesel
BrainTrust

Most of what Target sells is also available online (including at Amazon itself). You can argue that this kind of acquisition would cannibalize Amazon’s own dominance in e-commerce; on the other hand, it provides a huge complementary brick-and-mortar presence to fight Walmart’s omnichannel efforts.

I’m skeptical about this prediction — which seems aimed in part to generate clicks and buzz — but Amazon has already proven through the Whole Foods acquisition that it wants more physical locations. Keep in mind that Amazon and Kohl’s are also collaborating on some in-store tests of “smart home” shops and return centers.

Richard Layman
Guest
17 days 8 hours ago

This is speculative, designed to stoke the market. Although Amazon’s thinking has proved me wrong a bunch of times. The Whole Foods acquisition only makes sense as being focused on supporting and extending their “platform” or “product service system” developed around Amazon Prime. Whole Foods makes perfect sense because the demographics of their customer base and the location footprint of their stores likely dovetails very strongly with the Amazon Prime customer base. There is no way that this is true of the Target store footprint or demographics/customer base. Therefore it seems highly speculative, like a stretch and like a dilution of revenues to pursue Target. But again, I am not great at predicting what Amazon will do.

Richard J. George, Ph.D.
BrainTrust

Target and Whole Foods have something in common. At one time, each was considered to offer a significant differential advantage in their respective markets. In particular, Target owned the “cheap chic” image vis a vis Walmart’s low price only position. Both have suffered strategic and operational issues that have significantly reduced their market influence.

Going forward, an acquisition of Target by Amazon is a real win for Target. However, as noted by other contributors, the advantages to Amazon are not clear cut. I see the primary benefits to Amazon being bringing the brick-and-mortar opportunities and the Target positioning in its battle with Walmart.

Cynthia Holcomb
BrainTrust

This is a prediction created for PR buzz. There are too few Target stores for it to make sense. In soft goods and home lines, Amazon has no “style or fashion POV” — Target does. Stripping Target of its branded POV by surrounding Target product with Amazon product makes no sense at all.

Kai Clarke
BrainTrust

No. No. No. Target has no aspirations for an acquisition (which is important in an acquisition process). Amazon has to see value in acquiring 1800 very large and expensive retail stores. Target does not compliment Amazon (they compete), unlike the Whole Foods deal (which was a grocery purchase). There are multiple other reasons as well ranging from the political issues (noted in the article), the other investment opportunities for Jeff Bezos, etc. This is simply a poor assertion by a technology firm that clearly does not understand the dynamics of retail and the shift of the retail marketplace.

Craig Sundstrom
Guest

“Loopy Ventures” might be more like it. So if I have this straight, a third party announces — apparently without any input from the parties involved — that it thinks a very large retailer will be acquired by an even larger one because … well, because they both sell stuff. Perhaps; but I’d be more impressed in Amazon actually made money on a consistent basis from its retail segment.

Still, whatever happens, this speculation served its purpose: it got Loup some publicity … something even, or maybe especially Amazon can appreciate.

Kenneth Leung
BrainTrust

I think Amazon needs to learn more from the Whole Foods acquisition before tackling something as big as Target. Granted Amazon has the financial means to do it, but it would take one heck of a management team to pull together the disparate cultures and logistics.

Ken Morris
BrainTrust

From a product mix and broad nationwide footprint of store locations perspective, Target seems like a great acquisition “target” for Amazon. However, it would be a hefty investment of about $40 billion for Amazon. The acquisition by Amazon would be a great way to get instant local distribution and delivery of products for same-day delivery in most every major market. I am not sure how much benefit it would be for the Target brand but would certainly give Target more leverage with their vendor community.

Kohl’s may be a good alternative for an acquisition candidate for Amazon. While they don’t have as broad of product assortment or store footprint (about 1,200 vs. 1,800 for Target), it is a much less expensive investment of about $10 billion.

There have also been rumors about Nordstrom on Amazon’s acquisition target list. It will be interesting to see what Amazon does in 2018. Any of these acquisitions will likely be good for consumers and potentially bad for other retailers.

Bill Hanifin
BrainTrust

The most innovative move that Amazon can make is to avoid the predictable one of acquiring brick and mortar chains to expand its business footprint.

Amazon has built its business on removing friction and cost from retail commerce. If their next move is to continue acquisition efforts in bricks and mortar (post Whole Foods), does this mean that they have exhausted their opportunities to disintermediate or innovate in the digital channel?

Continued partnership efforts with retails already invested in brick and mortar might be a better step while Amazon fortifies itself with Whole Foods.

Min-Jee Hwang
BrainTrust

As about 90% of retail is still done in-store, Amazon needs to improve their brick and mortar presence to increase their market share. The company won’t release the official number of paying Prime subscribers they have and some have questioned the lofty estimates we’ve all heard. Both would benefit immensely as Amazon needs access to in-store shoppers (to cement them as a contender for the top spot in omnichannel retail) and Target could use some guidance to shore-up their online channels.

Does Amazon have the bandwidth to do this in 2018? That’s my big question.

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