Should Amazon buy Target?

Photo: Target
Dec 11, 2018
Matthew Stern

A lot can change in 12 months, but for one analyst a conjecture made around the start of the year still stands as we get ready to ring in 2019 — should acquire Target.

Loup Ventures analyst Gene Munster is still sold on the notion that it would make sense for the e-tail giant to snatch up the brick-and-mortar discounter, as reported on Seeking Alpha. With Amazon’s advantages lying in logistics rather than retail, according to Mr. Munster, the company could benefit strongly from Target’s physical presence and large but not unwieldy footprint.

When Mr. Munster initially discussed the advantages of an acquisition at the beginning of the year, he also cited other factors such as a demographic overlap in the customer base. He pointed to Amazon’s use of Prime to market to female heads of household and the introduction of kid-friendly content to Prime Video as evidence that both Amazon and Target were focused on moms with kids.  

The year 2018 has seen plenty of developments for each of the retailers in question.

Target has been going strong with investments in unique private brands, technology and last-mile fulfillment. The chain posted its best quarterly comp sales growth in 13 years during the second quarter. A 6.4 percent gain in customer traffic was the highest increase since the chain first began reporting the number in 2008. The retailer followed its second quarter success with a 5.1 percent gain in comp sales and a 5.3 percent jump in traffic during the third quarter.  

Despite the flow of good news, Target has seen its stock price fall 24 percent over the past 90 days leading some beyond Mr. Munster to see it as takeover target.  

Amazon, meanwhile has spent the year dominating headlines — some laudatory, others describing perceived weaknesses. For instance, Amazon showed some creative omnichannel thinking with its new brick-and-mortar presence by extending Amazon Prime discounts to Whole Foods customers, but anticipated customer-facing improvements, like the reduction of prices, haven’t not come to fruition.

And even as Amazon has broken new ground with its Just Walk Out technology and made an unprecedented move into retail pharmacy with a bid for PillPack, it has demonstrated some areas of vulnerability, including weakness in women’s apparel (a Target strength).

DISCUSSION QUESTIONS: Is Loup Ventures’ Gene Munster on-point about Target’s potential value to Amazon? Do you see Target’s board being receptive following the progress it has made in recent years?

Please practice The RetailWire Golden Rule when submitting your comments.
"I’m not sure Target’s board would go along with Amazon at the moment."
"I just think it would be sad if Amazon acquired a second retailer that is one of the standouts in our industry."
"Perhaps the largest financial detriment to brick-and-mortar retailers is their ever-fading return on capital investment of big box footprints."

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22 Comments on "Should Amazon buy Target?"

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Min-Jee Hwang

You can certainly argue that acquiring Target would be valuable to Amazon, but would it be valuable to Target? Target has done well recently, as the numbers show, and it is doing more to appeal to online shoppers, such as redesigned store layouts to improve the BOPIS experience. I’m not sure Target’s board would go along with Amazon at the moment.

Neil Saunders

There is a lot of logic in an Amazon takeover of Target, especially in terms of what Target can bring to Amazon: a good network of stores that can be used as points of distribution, a loyal customer base with a clear demographic overlap, and some strong own-labels – especially in furniture and apparel where Amazon still struggles. Target would also give Amazon another food business that, while far from perfect, has potential. From Target’s point of view, Amazon would help with logistics and margins, both of which would be beneficial. All that said, Target is a distinct business that works because of its culture and approach to retail. Amazon would need to take great care not to disrupt that.

Jeff Sward

I started suggesting more than a year ago that Amazon should acquire Sears. Even then I viewed Sears as all but defunct and about to leave a gaping hole at that end of the mall. Sad, but RIP. The acquisition would not be of the Sears brand, but the (cheap) real estate. Target does not need fixing. But imagine the upside if Amazon completely re-rationalized the space utilization at the Sears end of the mall. That’s a much bigger win for everybody.

Peter Charness

Not sure which “business model” Amazon needs a Target for. Showcase for Amazon Basics?, Amazon Fashion? I suspect a chain of local fulfillment centers would suit Amazon better than dealing with the challenge of editing its massive assortment for a physical box presence.

Zel Bianco

Target has more to offer Amazon at this point. If the stock price continues to trend lower, and that may not be completely in Target’s control, then perhaps it will make more sense. If nothing else, Amazon’s deep pockets will allow Target to have greater flexibility to try different strategies or, at the very least, continue some of the ones they’ve already put in place recently. I just think it would be sad if Amazon acquired a second retailer that is one of the standouts in our industry.

Too much power in the hands of Amazon may not be a good thing for the industry or the consumer.

Dick Seesel

It’s tempting to speculate about how and when Amazon will take another deep dive into brick-and-mortar retail, following its splash last year with Whole Foods. For example, the rumors were flying for awhile about Amazon and Kohl’s after the latter added Amazon return desks and “device” shops to some of its stores, but that noise seems to have quieted down.

But is Target the right move, especially now? It seems that Amazon already has its hands full building out “Amazon Go” and other brick-and-mortar concepts, as well as really leveraging the Whole Foods acquisition. There is also the question of whether Target — proudly independent since 1962 — really wants to be under someone else’s thumb.

Ben Ball
The analysis makes sense, but it has one big assumption that I question. Namely, does Amazon think it needs a physical retail presence beyond the fresh food category? That consumers aren’t enthusiastic about buying fresh food from a brown box on their doorstep has been made woefully obvious by the success of click and collect. But do they need the same for women’s apparel? I think not. Mr. Munster makes another point that I personally think is more interesting — Amazon’s strength is logistics, so here’s a take-over idea in a different vein. Why doesn’t Amazon take over the USPS? Strike a deal that saves the service but relieves the new venture of the pension commitments that are strangling it going forward. Of course, the U.S. taxpayer will still have to sort out the current mess. Sort of a GM bail-out in reverse. Amazon gets to own the last mile, the U.S. gets a more efficient mail service and USPS employees get an employer that is viable long term. The idea won’t be popular in… Read more »
Ryan Mathews

The real question might be not does Amazon need a physical retail presence but rather, if they do need an expanded physical presence, do they want to be stuck with the existing Target network or would they be better off building/leasing their own locations on an opportunistic basis? I like the idea — in theory — of a USPS takeover. Of course — among several thousand things — the pension plan liability, (which I don’t think they could realistically get out from under) would keep that from every happening, but you raise a good point. Can Amazon continue to grow without its own dedicated distribution arm? What happens if all the existing carriers suddenly raise their rates? So, if not the USPS, maybe DHL’s North American operations makes some sense. BTW, you do get extra points for the idea of getting the government out from under the Post Office, but the idea of a “Forever Amazon” stamp might curl our retail friends’ collective toes.

James Tenser

Some creative thinking here about Amazon buying its way into the last-mile distribution game, but I think it is already well down that path. Navy blue vans decorated with neon green “Amazon Prime” logos have been prowling my east Tucson neighborhood for weeks, while an announced million-square-foot Amazon D.C. broke ground on the edge of town several months ago.

As much as I’d love to see the postal service get a shot in the arm, it looks to me like Amazon is already building its own package delivery system, which will not be saddled with the responsibility for sorting and delivering first-class letters or operating retail post offices.

With respect to a proposed purchase of the Target chain, I’m also skeptical. While the brand is at a value peak currently, it’s the real estate portfolio that matters for the long term. If I ran Amazon, I’d think hard before taking on 200 million square feet of retail space, and be especially hard-nosed about the secondary and tertiary locations.

Frank Riso

I do not think Amazon’s prime target is Target. Sorry, I could not help myself from saying that. It may be of value but with a main focus on shopping at home and staying at home, the Target asset would be more for picking up in-store. This is not yet the model at Amazon and that is what keeps them competitive. The cost of the stores in overhead would also be a concern I think for Amazon. If the price is too good to be true what can the board do? They can say it’s a bad deal but the stockholders would be the ones to really make the call. Target can do better on their own.

Carol Spieckerman

It’s all too easy to back logic into Amazon buying Target but Target (and specifically, Brian Cornell) has too much to prove at this point. I’ve yet to see significant improvements at Whole Foods since Amazon acquired it – if anything, things have moved in the opposite direction in terms of service and product selection. Amazon has bitten off enough for now and Target needs more time to prove its point. As Amazon receives more scrutiny, antitrust hurdles are another consideration.

Ron Margulis

Targets are too big for what Amazon thinks is the physical retail of the future, as witnessed by the Whole Foods acquisition. They want 20,000-40,000 square feet for showroom, stock and customer service. Better targets (pardon the pun) would be either Barnes & Noble or Bed Bath & Beyond.Toys “R” Us would have been good too.

BTW, I’m still convinced Amazon should buy the U.S. Postal Service and outfit their trucks with coolers to reach the economic threshold required to make home delivery on a mass scale financially feasible.

Cynthia Holcomb

Target is on a roll. Back in the swing for a while now of offering cool products in an easy to shop format. And who are the majority of Target customers? Women! Why? Target is an experiential experience, for products purchased based on human emotion. Conversely, shopping Amazon is a linear, non-emotional, often tedious process ferreting out which third-party seller to place an order with. Why does Amazon struggle with women’s apparel? Amazon apparel offerings are soulless knockoffs of best-selling styles, counterintuitive to how women shop. Amazon is no Target! Just saying …

Ananda Chakravarty
I don’t see this as a viable deal at this time. I can’t see any benefits for Target’s board in this case. Even Amazon would be under deep pressure to figure out how to operate a full scale physical retail operation and it continues to struggle with its Whole Foods acquisition. Target is the fourth largest U.S. retailer and 10th in the world. They have more than 50 million square feet of distribution space across 41 centers in the U.S. according to MWPVL — certainly no logistical lightweight. Target drives a very powerful ship and certainly won’t be a cheap buy — given Whole Foods, who had about 1.2 percent of the U.S. grocery market was bought for $13.4 billion. Hypothetically, this would be the largest deal ever in retail with many complications in a space that Amazon is just learning about — physical retail. Instead, Amazon has taken the smart route, hiring some of Target’s execs like Don Clark to help manage their physical retail learning curve. It’s not going to happen anytime soon.
Liz Adamson

Acquiring Target would help Amazon further launch into the brick-and-mortar business and into categories like clothing. Target would benefit from Amazon’s deep pockets. Both would benefit from each other’s large customer base. However this may not be the right time. Amazon is busy rolling out its cashierless Go stores, settling in with Whole Foods and finalizing the PillPack acquisition. Not to mention the increased scrutiny it has received lately in the U.S. and Europe due to its already massive reach and size. Amazon should take care not to take on too much at once.

Gene Detroyer

With all the forward looking innovations Amazon has brought out in the last 20 plus years, it seems to me that Target would be a step backwards. While several reasons have bee highlighted that it would make sense, those reasons are not core to the Target business. Amazon would have to buy a lot they don’t want to get a little that makes sense.

Shawn Harris

Bezos Acquisition Thesis:

  1. Customers love it;
  2. It can scale;
  3. It has healthy ROIC;
  4. It is durable over time …

I think Target would hit the mark and align well with Amazon. Here is a prediction I had earlier this year:

Thoughts on this prediction, @Amazon to acquire @Target? Might as well throw @Starbucks in there too… $110B+ #Retail #Predictions2018— Shawn Harris (@SmarterRetailer) January 2, 2018

Shep Hyken

As Whole Foods was of value to Amazon in the grocery business, Target could give similar benefits to Amazon in the general retail side of the business. That said, why didn’t Amazon make a play for Sears, although the traditional mall business is an issue? There are other retail opportunities that Amazon could consider.

Ken Morris

Amazon Prime membership has slowed as it is getting close to the saturation point. They are looking for new ways to grow and acquisitions are the fastest strategies for growth. Acquiring a competitor serves two purposes: increase sales and reduce competition. Target is a logical acquisition candidate, as they have similar product assortments and customer profiles. The greatest asset is their network of store locations that would give Amazon an instant nationwide brick-and-mortar presence for their products and serve as mini-distribution centers. There is potential to mashup Whole Foods with Target and leverage that brand equity as well for the grocery component of Target.

It is an interesting idea. Let’s see what happens…

Mark Heckman

Perhaps the largest financial detriment to brick-and-mortar retailers is their ever-fading return on capital investment of big box footprints. In every case study and projection I read, shoppers will continue to substitute online and smaller retail footprint options in place of their past, steady reliance of physical stores. This leaves every big box retailer, including Kroger, Meijer, Walmart, and our friends at Target with the daunting task of managing these big boxes with massive inventories coupled with the prospect of fewer shopping trips as time progresses. Why would Amazon, which represents a more cost-effective approach to retailing, want that liability?

gordon arnold
Amazon is seeking to capture market acceptance on a larger scale from their patronage as well as gain recognition from previously indifferent market prospectus in any demographic status. Constantly upgrading the software they use in e-commerce is a must and remains a good portion of their selling stability. Growth at their level seems to continue to be made through increasing market share. See, feel, touch and learn purchase needs are still satiated principally through a brick-and-mortar experience. This is a large part of the reason Amazon is buying large retailers. Other benefits in this expansion plan are to accommodate the desire to enter and exploit the world of impulse buying. BOPIS sales will slow the rising shipping costs that they now realize they have almost no control over. I find the desire to invest in high-line mass merchants that have priced themselves into a stall very interesting. Amazon seemingly sees customer service and support as a need that is more relevant in 21st century retail techniques than price. This is unique in the land of… Read more »
Joan Treistman

Where do you go when you’ve run out of destinations? I think that Amazon can bring new opportunities for Target, while expanding its immediate accessibility to products that consumers want (as demonstrated by Target’s recent history). Amazon has been leveraging brick-and-mortar and Target is a perfect part of that strategy.

"I’m not sure Target’s board would go along with Amazon at the moment."
"I just think it would be sad if Amazon acquired a second retailer that is one of the standouts in our industry."
"Perhaps the largest financial detriment to brick-and-mortar retailers is their ever-fading return on capital investment of big box footprints."

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