When most of us think of Target, we usually visualize a middle market company that executes a high volume sales strategy. To be sure, the chain does maintain a stylistically distinctive brand image, but it’s commonly perceived to offer a simple value proposition: to provide lower-to-middle class consumers with a moderately comfortable shopping experience and the prospect of fairly low sales prices.
Within the past two weeks, though, Target announced a pair of highly unusual business initiatives that would dramatically differentiate it from the competition. First, it announced that it is collaborating with a major consumer electronics firm to form a joint venture; then, it reached out to its suppliers in an aggressive attempt to respond to market challenges from Amazon.
It remains to be seen, of course, which approach will prove to be the more effective one. Interestingly, though, each of Target’s initiatives appears to be based on a different assumption about the nature of its own core competency.
The War On Showrooming
Last week, Target reached out to its suppliers and asked for help in combating the practice of showrooming. It’s an activity that has blossomed with the emergence of internet-based shopping; it refers to the manner in which some consumers “scope out” products in a bricks-and-mortar store and then log onto the internet at home to purchase them from discount web sites like Amazon.
Because web-based retailers do not need to incur the costs of maintaining store networks, they can usually undercut the sales prices of chains like Target. In many states, and for many categories of products, web-based retailers can avoid collecting sales taxes from customers as well.
Frustrated by the practice of showrooming, Target’s executives asked their suppliers to consider designing “special edition” products that would be exclusively sold through their stores. The executives also implied that they would request special discount pricing arrangements with their suppliers, and would (presumably) pass the lower costs through to their customers.
By making such requests, Target’s executives signaled their clear intention to continue battling Amazon and other online retailers. At the same time, though, Target is also taking a drastically different approach to managing their competition.
If You Can’t Beat ‘Em, Join ‘Em
Two weeks ago, Target and Apple jointly announced an innovative new venture. According to that announcement, Apple will soon begin to utilize Target’s floor space to create “store within a store” boutiques for its products and services.
Apple boutiques within Target stores? What strategy would be more unusual than that one? After all, the two firms compete directly with each other to sell computers, mobile phones, and other electronics merchandise.
Furthermore, with Apple dramatically expanding its own global retail store network, the two firms are arguably heading for even more intense competition. And yet Target has decided to turn over a significant amount of its floor space to the world’s most valuable company in terms of market capitalization.
The Core Competency
How can we make sense of this dramatic divergence in competitive strategies? One way, perhaps, is to understand two different ways in which Target might be defining its core competency.
If a retailer defines its primary competency in terms of creating an attractive shopping environment, then it wouldn’t necessarily be alarmed by the prospect of more intensive product competition. Starbucks, for instance, comfortably sold Top Pot doughnuts in its stores for many years because it has always defined its core competency as the creator of a social “middle space” between home and work. It has never simply defined itself as a vendor of coffee and doughnuts.
On the other hand, if a retailer defines its primary competency in terms of maximizing sales volume, then it would most likely be concerned about product competition. Automobile companies, for instance, often prohibit their dealers from affiliating with rival manufacturers because they define their primary competency in sales terms and not in “shopping environment” terms. And most middle markets dealerships have never been known as attractive shopping environments!
Under such circumstances, it’s easy to categorize Target as a sales focused retailer. But can we really categorize them as an environmentally focused one as well?
Welcome To Magnolia!
It is indeed a bit difficult to envision a Target store as the host of an Apple boutique within a pleasant shopping environment. But Target does have role models to emulate while executing this strategy; Best Buy, for instance, has been hosting hundreds of similar Apple boutiques for several years.
Perhaps more importantly, Best Buy has been partnering with Magnolia Design Centers to create hundreds of high end electronics boutiques within their stores. The partnership continues to be a successful one; it may well have served as a model for Best Buy’s (and now Target’s) expanding joint venture with Apple.
In other words, although many may believe that Target would be better served by focusing on a core competency of product sales, Best Buy has actually been pursuing a successful boutique business strategy for several years. Based on Target’s recent pair of strategic announcements, it is possible that they are now attempting to execute both strategies simultaneously.
