Target’s Tactics Called Heavy Handed
By George Anderson
Suppliers to Target say the retailer, which has traditionally been known for partnering with manufacturers, is now using reverse auctions and strong arm negotiating tactics to do business, reports AdAge.com.
Suppliers, who refused to be identified fearing a backlash from the Minneapolis-based chain, say the retailer has become more like Wal-Mart in its business dealings while Lee Scott and company have become more like Target.
“Target was once easier to work with than Wal-Mart. They were more into developing a business plan. You did it with them. Wal-Mart was more into dictating what they wanted,” said a VP-sales for a major consumer products company. “That’s changing now and Wal-Mart is more approachable than Target.”
Others said Target’s distribution system does not allow for their companies to reduce costs in such a way that price concessions can be justified.
For example, the unnamed VP-sales said that he can combine an order on a truck with other suppliers if none has enough for a full load. The Target system would require each of the individual suppliers to ship product separately.
Others have expressed concern that Target’s increased reliance on reverse auctions means that price is the prime criteria in the chain’s purchasing decisions, when other factors, such as a brand’s equity with consumers, is removed from the equation.
Target, reports AdAge.com, maintains reverse auctions put “vendors on equal footing so that the vendors who deserve the business get the business.”
A chief marketing officer for a well-known consumer brand said there is reason for concern based on Target’s current direction. The company, he said, “has a proven ability to make good house brands… they speak to a higher, more attractive demographic. If they come out with great-looking stuff, customers are loyal to shopping in their stores, not to shopping for certain brands. If you are a premium brand, why would you not be scared by that?”
Moderator’s Comment: If true, do you see the change in how Target deals with its suppliers as a positive or negative for its business as it continues
to grow? How do you see reverse auctions impacting retailer/supplier relationships and the products that find there way to store shelves and racks? –
George Anderson – Moderator
Some retailers are increasingly aware of level playing field issues. The Robinson-Patman Act allegedly stops suppliers from giving unfair price concessions to retailers. Some retailers are suspicious about their suppliers’ adherence to the spirit of the law. Any retailer whose purchase prices are unfairly disadvantaged would have trouble surviving, since the number one cost for any retailer is merchandise, and retail profit margins are very slender. Target may see no choice when considering reverse auctions. Short of hiring auditors to examine its suppliers’ records, how else could Target know if it’s paying the best possible price?
Target is simply responding to the pressures of operating in today’s competitive environment. The reverse auction is simply a very poor means of determining how low supplier margins can be pushed. Target should hire procurement specialists from Sears (the old Sears). They knew how to squeeze suppliers by developing their own specifications by reverse engineering product. They survived by bidding specs for long term contracts. The “long term” made it worth while for manufacturers to work at low margins.
Manufacturers are not stupid and most will not bid themselves into bankruptcy. The low ball bid often is made by a supplier who has the ability to procure and ship the merchandise but doesn’t have the ability to support the product. Support will fall on Target and, as they squeeze pricing, their support cost will go up, which will mean that customer satisfaction will go down. Then business will drift to Wal-Mart which is upgrading its product offering and is, in most cases, equal to Target already.
I’m with the majority. This is not news. The only question that this “news” makes me ask… Is Target trying to out-Wal-Mart Wal-Mart? While this apparently is a shift for Target, they must remember that it is easy to browbeat the supplier when they are on the top, but suppliers have a long memory. Should Target ever stumble, they had better look out.
This is a perfect example of how Wal-Mart manages to get vilified, even in the process of questioning other retailers’ hard-nosed practices! Target is “following” Wal-Mart? What hooey. As pointed out in other postings, Target has used reverse auctions for quite some time and Greg Steinhafel has plainly stated over the past couple of years that increasing their direct-sourcing prowess has been and will remain a big part of Target’s strategy. Global Bazaar wasn’t just about giving Pier 1 and Cost Plus something to worry about – it was a direct-sourcing bonanza. Anyone who decides to get scared at this point is behind the curve.
My personal experience would validate that Target is much more difficult to deal with than Wal-Mart. I really believe that Wal-Mart does a much better job engaging suppliers around the needs of the consumer and emerging trends. They constantly challenge our organization to exploit new opportunities and grow the market.
Target has very young “merchants” and high turnover that contributes to the necessity of auctions and staged negotiating events. Quite frankly, the high pressure, make a decision right now environment that they deliberately try to create is counter to building a long term partnership.
Wal-Mart has figured out that suppliers can be good partners if you invest in the relationship. As a result, our Sr. Management is intimately aware of opportunities at Wal-Mart and hear a steady diet about another “auction crisis” at Target. I think Wal-Mart wins long-term on this issue.
Don’t whine – refine. Don’t vent – re-invent. Don’t worry – scurry. Brands are mostly built from successful NEW innovations and product introductions. Incumbent brand owners have become accustomed to a level of business they do not usually continue to earn. A private label taking the place of a major brand is really not much different than a me-too competitor mocking their product and riding the coattails of the innovation selling on lower cost. Private label brands just happen to own their own shelves.
There are two viable solutions to working with Target, Wal-Mart and others who do this. One is to work with them at the lowest cost and profit possible producing their private label. Another is to revolutionize the marketplace with a NEW innovative product or innovative packaging that is patent protected. It’s a wonderful ride when you have a product such as Post-It Notes. A third is to take your already meaningful product and make it indispensable to the consumer, and, therefore, the retailer.
Where’s the news? A story based upon information that “if true” may have some kind of impact is pretty much an opinion piece. Lots of people have opinions on every company and every business process they use, try, or discard. Every company should be experimenting. Now where is the news?
I’m with Don. This story isn’t news — this (and the CLR process) has been going on for years. This is “make-news” from someone at AdAge.
Target has used reverse auctions for several years. In some cases, in my opinion, they have been applied properly and to the right type of product, and they have worked for all parties. In others, apples are being compared to oranges.
The issue with reverse auctioning is not some antediluvian theory of strong arm tactics. It’s the impact on Target’s assortments and service to the consumer when the tool is used incorrectly. First, no one makes any supplier offer product to Target at an unprofitable price, so abandon the unnecessary sympathy for the poor supplier. Second, if the product supplied by the supplier truly has an evident and vital competitive advantage in meeting consumer or Target strategic needs…it gets bought. Not reverse auctioned.
Target, like WM, is a very large company. Some buyers, DMMs and departments have slightly different approaches to partnering with vendors than others. Some TG merchants are very difficult to deal with, push vendors for impossible terms, and in general, make themselves unattractive as customers. The same is true of some WM merchants. Big deal.
The issue here is not that reverse auctions use unfair leverage. They do not. The customer has a potential order. They (rightly or wrongly) believe that, to most extents and purposes, the products offered by the market are interchangeable. Within defined spec parameters, they ask for the best bid possible for the volume offered.
Where’s the beef?
As soon as a retailer becomes big in the market and their sales are good, automatically at one point in time, it will change the approach with suppliers.
It’s common, because of the market power; no way the supplier has to go to the maximum discount on its products.
To the supplier, the retail client is the only customer. If they want business, somewhere they have to chop the price and get going.
But to retailers, its the other way round; they have to make each one of the customers happy, then the sales happens.
Target is doing pretty correct job.
The key words in the question are “if true.” I’m always a little skeptical about those willing to protest an injustice provided they don’t have to go on the record. And, like it or not, price is still (correctly or not) seen as the driver of most middle class and below consumer goods purchasing. The myth of Target is that it existed in a competitive set by itself. Now that Wal-Mart has taken steps to broaden its appeal that myth (which I believe was never true) simply can’t be maintained. Result? Reverse auctions and more pressures on vendors. Aggressive sourcing is for all intents and purposes the national anthem of modern retailing, so why are we surprised when Target starts singing it (assuming of course they are)?
Target is becoming more like Wal-Mart, especially in their house branding initiatives. However, they are only reflecting some of the larger changes in the market. Many retailers are moving their profits forward by developing a better house branding initiative. They are also trying to leverage and use the strengths of their suppliers to better manage costs and control inventory. This is critical to success in the retail picture, and we are already seeing this change at Best Buy, Circuit City, Safeway and others. Strong house brands, strong vendor core competencies to support the retailer’s initiatives, and maximizing the value relationship between both vendor and retailer are quickly becoming the de facto standard in the retail industry. Anyone competing in this space needs to be aware of this and move forward developing their business around these key competencies, if they plan on becoming a successful partner.
Reverse auctions have been around for some time now. I haven’t heard that Target is using them a great deal more, or less, than anyone else. Reverse auctions in and of themselves don’t necessarily cheapen product — it’s up to the retailer, with its specifications and practices, to do that. I just finished doing a cover story on Target, and did extensive interviews with about 30 manufacturers. The reviews were very much mixed, about down the middle on average. I will say that, more than average, vendors seem to either love Target or hate them. Some sang the chain’s praises, others compared it to the old Fleming. I think Target has come a long way, and has a ways to go. It needs more experienced buyers. Some of the young buyers, I am told, act immature in negotiations and mouth off, much like many of us did when we were in our 20s. Others are more mature, and good learners. To see our cover story on Target in our Jan-Feb issue, go to www.rffretailer.com and click on the cover.
Manufacturers are being forced to connect with the consumer directly and provide a “true” value-added product here. Target is making their own brands as the reason to shop their stores. It is the “Target experience” they are selling and not the fact that they offer brand A or brand B. As long as the shopper does not feel disadvantaged by the loss of a particular brand (and seemingly, that is not occurring with regularity) – Target is forcing the discussion to be price driven (said another way, the manufacturers have not proven that THEY are the reason the shopper bought one product over another). This is not really any different than it has always been…it just is getting more bold. If you deserve to stay, you will…if not, you are relegated to being a price-based decision and are a commodity.
Just to be very fair to Target, who is anyone
kidding about Target becoming like a Wal-Mart?
And most important, Wal-Mart modifying itself (I didn’t use
the word,’changing’) to ONLY mirror Target?
Philosophically speaking, “Striped animal never loses
stripes, as hard as it tries!”
We criticize Target for doing what the food, foodservice and
mass merchandising industries have been doing for the DEVIL
knows, how long!!!
Please give all of us a break in suggesting Target is
becoming unacceptable in its supplier practices.
Ryan M. is right; Target should be given the benefit of doubt
until we hear such awful disrespect on an everyday basis.
Let me throw this in… what will we say when the automotive
industry arm twists the Government and poor tax payers? Look
what Honda could be doing, and isn’t. Hmmmmmmmmmmmmmmmmmm