Dispatches from the Digital Revolution

Target vs. Amazon: On target or missing the mark?

On May 2 Target announced that it will no longer carry Amazon’s Kindle products in its stores. The chain’s decision is just the latest spot of controversy in the never-ending Amazon saga, but the question is, who will ultimately suffer?

According to this New York Times piece, Target executives made the strategic decision to cut ties because they were tired of acting merely as a showroom for the online giant.

“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,” Target executives wrote in a letter to vendors, asking them to think of new pricing and inventory strategies, according to a note that Deborah Weinswig, a Citi analyst, sent to clients.

At one time, Barnes & Noble’s greatest advantage was its brick-and-mortar presence—customers could walk into a store, touch, feel, and experience the Nook first hand without blindly ordering it on the Internet and hoping for the best. Back in 2010, Target had an exclusive arrangement to sell Kindles in store.

Alas, times have changed; now you can find Kindle ereaders in other locations like Staples and Best Buy. Not only that, but Amazon offers lower prices, so of course consumers are going to walk into Target, get a feel for the product, and promptly go home to their computers and buy it online. Given that Amazon and Target’s main lines of business are so similar, it’s no surprise that Target has decided to take a stand.

Undercutting suggested retail prices…heralding customers to shop online with open arms…hm, sound familiar?

While those who are not fans of Amazon may consider this a victory and will cheer for Target on the sidelines, I’m not sure that this move will make all that much of a difference in the big-picture view. After all, according to reports from Reuters, Wal-Mart has no plans to discontinue selling Amazon’s products. If other big box stores decided to put an end to being a showroom for Amazon, well, maybe they’d be a little nervous. But…that’s not the case. In fact, Forbes writer Eric Savitz argues that the decision may do nothing more than hurt Target sales:

While it certainly is admirable to see Target taking a stand here, I suspect all they’re accomplishing in the end is reducing their own salers; people will continue to treat America’s big box retailers as Amazon showrooms, like it or not. The challenge for the retailers is to figure out something—services, an experience, whatever—that Amazon can’t duplicate.

It should also be noted that this isn’t the first “divorce” between Target and Amazon. At one time, Target relied on Amazon’s services to operate its website. As the previously cited Reuters article notes, handing over part of their business to Amazon might have been a huge mistake.

Amazon ran Target’s website for several years, but that relationship ended last year amid a legal battle. “That’s probably something Target now regrets,” [Matt Nemer, analyst at Wells Fargo] said. “It put them behind in the world of multi-channel retail and let a serious competitor learn a lot about their business.”

Ultimately, Amazon has something big going for them: a fantastic relationship with their customers. They speak the language of low prices, and consumers absolutely love it. (I admit, I have been guilty of window shopping at the Container Store and then purchasing the same products through Amazon to avoid exceptionally high shipping costs. Guilty as charged.)

The thing is, Amazon is every industry’s biggest frenemy. Right now, companies need to navigate how to partner with Amazon in a strategic way without undermining their own business. Authors and publishers have to figure out how to leverage all the good that comes with Amazon without handing over key data. This is something that virtually every industry is going to have to grapple with as Amazon continues to expand its business.

Then again, it’s dangerous territory. Though I have been unable to find any concrete source confirming this, rumors have been flying that Amazon, in response to Target’s announcement, has removed all Target products from its site. I’ve searched a couple of Target items on Amazon and haven’t come up with anything, so maybe it’s true, but again, I don’t really know for sure. If anyone can confirm or refute, please do comment below.

One comment on “Target vs. Amazon: On target or missing the mark?

  1. Pingback: Stuck in the middle: Tablets for low-income consumers « appazoogle

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This entry was posted on May 22, 2012 by in Business, Opinion and tagged , .

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