Target Sends SOS to Vendors

In an effort to better compete with online retailers, Target (NYSE:TGT) is asking for help from vendors.  Brick-and-mortar stores such as Target, Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT) and even Barnes & Noble (NYSE:BKS) are often the victims of show-rooming, which is when customers come into a store to see and test a product in person, but end up purchasing it from an online retailer at a cheaper price.

Last week, Target sent a letter to vendors suggesting that suppliers create unique products that can only be found in Target stores.  Target believes products designed specifically for its physical stores will help set it apart from online competitors and prevent price comparisons that customers often perform on smartphones, such as the Apple (NASDAQ:AAPL) iPhone.  Since unique products may not be available in every situation, Target also suggests that suppliers help it match competitors’ prices.  The letter explained, “What we aren’t willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands.”

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While show-rooming is a growing problem for retail stores, it is a large catalyst for online retailers such as Amazon (NASDAQ:AMZN).  According to the WSJ, “This year store sales overall edged up 4.1% during the holiday shopping season, while online sales jumped 15%. And while online sales represent only 8% of total sales, that is up from just 2% in 2000.”

Although Target holds significant standing with suppliers, as it is the second-largest discount chain, suppliers are remaining quiet on the letter …

Major suppliers such as Kraft Inc. (NYSE:KFT) and Procter & Gamble (NYSE:PG) would not confirm they even received the letter, and analysts remain split on the move.  Citigroup (NYSE:C) retail analyst Deborah Weinswig believes other retailers are likely to take similar steps, while Goldman Sachs (NYSE:GS) retail analyst Adrianne Shapira says retail shopping will continue to head towards online-only retailers.

Earlier this month, Target announced it will feature special Apple displays in 25 of its stores.  The partnership with Apple is also designed to attract more customer spending in its brick-and-mortar store.  However, it is still early to determine how customers will respond.  Online retailers are unlikely to sit back and do nothing.  Last month, Amazon paid customers $5 if they used Amazon’s Price Check app to make a purchase on Amazon’s website, instead of a brick-and-mortar store.

To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com