Target Takes on the Amazon-Loving, Smartphone-Surfing, Bargain-Craving Showroomers
Target announced online price matching for online retailers including Amazon.com
Last summer, I had a revelation while shopping at the Antiques Garage Flea Market in Manhattan's Chelsea neighborhood.
I was looking at a $25 art book and having a tough time deciding whether it was worth it.
So I went ahead and did something that to this day makes me feel really bad about myself -- I whipped out my Apple (NASDAQ:AAPL) iPhone and searched for the price on Amazon.com (NASDAQ:AMZN).
Now, I'm the type of person who complains that New York has become far too safe and clean, and that it's overrun with big chain stores that push out the very locals that make this city an interesting place.
Luckily, I quickly came to my senses and decided that if I continued on this wayward path, I would have no right to bellyache about the destruction of authentic New York at the hands of the privileged.
So I locked my iPhone without looking at the lowest price on Amazon (about $7 including shipping) and bought the book because it was the right thing to do.
And in putting myself back on the path of the righteous man, I saved my soul -- or at least my right to babble about how much better things were in my day. Of course, in my day (let's call it the '90s), everyone older talked about how great New York was in the '70s and '80s. I'll add in my own defense that over the years, I've spent many, many thousands of dollars on books, movies, food, and clothing from independent shops, including thrift stores, and I'm a damn good tipper when treated right.
Now this absurd tale of big city neurosis (want to hear about my struggle to find the right blue cheese?) does have a point, because the practice of "showrooming" -- where people shop in real stores while comparing prices online via smartphones -- has turned into a problem for brick-and-mortar retailers like Best Buy (NYSE:BBY).
On December 12, Harris Interactive released a report indicating that 43% of US adults showroomed, with the primary beneficiary being Amazon.
Since the dawn of online shopping in the 1990s, online retailers have been a source of tremendous price competition for traditional stores. However, with 3G/4G mobile Internet giving people a fairly sophisticated online shopping experience, comparing price online and offline can now happen in real-time in stores, intensifying the battle.
Target (NYSE:TGT), however, is fighting back with a new price-matching program that could be construed as a direct reaction to the showrooming boom.
This morning, the company announced that its new price-matching policy would include online prices from Amazon, Wal-Mart (NYSE:WMT), Best Buy, and Toys "R" Us. Previously, Amazon matched online prices during the holidays, but now the program is extended to run year-round.
My initial reaction to the news was very, very negative. I am in the camp that believes physical retailers should focus on offering a better shopping experience (see the Apple Store) rather than trying to compete with Amazon on price. It's a war of attrition and Amazon is happy to take serious casualties in the form of weak near-term profitability.
But ultimately, Target's announcement ultimately appears to be a wash in terms of actual profitability because I doubt an awful lot of people are going to go crazy to pursue price matching.
First of all, this isn't an anything-goes type of program. There are plenty of exceptions in Target's price-matching policy, including clearance items, Black Friday deals, marketplace prices, and cell phones, the latter two likely because Amazon is absurdly cheap in these areas.
And according to the Harris Poll, Target is not a major showrooming target. Just 9% of showroomers did the deed at Target, vs. 24% for Best Buy and 22% for Wal-Mart.
In fact, on the company's third-quarter earnings call, CEO Gregg Steinhafel commented specifically on price matching:
We don't see a lot of price-match activity in our stores. We've been price matching for a long time. Our value proposition is so good day in and day out, and our circular price offering is so good that we don't expect this to be meaningful.
Now let's examine the mechanics of actually getting a price matched.
In the press release, Target says the following:
Price match may be requested at Target’s Guest Services prior to a purchase with proof of current price or by bringing the original Target receipt and proof of current price.
Wait on a line before waiting on a line? At peak shopping hours, I think many people will pass. So it's possible that people will only really pursue it for expensive purchases like computers and other electronics. And in that case, I'm sure Target will still have a shot at coming out ahead on sales of profitable extended warranties.
There will be some annoying people that go gaga trying to price match on every little thing, but maybe it's best to capture a discounted sale than nothing at all.
So overall, I view this news as a fairly mild negative, but not an ultimate surrender to Amazon -- Target's just rolling with the punches and accepting reality, which is way, way better than doing nothing at all.
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