A letter that surfaced last week from Target executives to the company’s suppliers brought back memories of Tom Hanks signature line from the movie A League of Their Own about how there is no crying in baseball.
There’s no whining in retail either, but that’s how Target chairman, president and CEO Gregg Steinhafel and EVP merchandising Kathee Tesija came across initially in a letter to suppliers bemoaning what has become known as “the showroom effect.” It’s where consumers browse brick-and-mortar stores and then order merchandise from online-only retailers at a lower total price thanks in part to their ability to avoid paying sales tax.
It may not be fair, and there is no good reason why online only retailers shouldn’t be collecting sales taxes on behalf of the jurisdictions in which the sales emanate, but those are the marketplace realities under which Target and others have to operate for the time being.
And Target is one to complain. The company has it nowhere near as bad as its cross-town rival Best Buy. The electronics chain’s product assortment is skewed toward high consideration items that are more prone to price comparisons whereas Target practically invented the word differentiation and it’s not selling big ticket items. It’s only been within the past few years as a result of the PFresh rollout and expansion of food and consumables that Target has begun to experience a higher degree of overlap with mass market competitors in product categories that aren’t generally purchased online.
Nevertheless, as the letter stated, “As we all know, the retail landscape is changing at a more dramatic pace than ever before. Due to the rapid adoption of new technology tools, consumers now expect a seamless cross-channel experience, want complete transparency on price, and are using technology to find the best deals regardless of retailer or channel.”
The letter expressed an understanding and appreciation for consumers’ desire to find the best price and affirmed Target’s commitment to delivering the differentiated, high-quality merchandise the company is known for at low prices.
“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, create a superior guest experience, provide hundreds of thousands of jobs, and support local communities,” according to the letter.
That comment may not warrant a rebuke from Hanks about whining, but Target did use it to make the point about a larger strategy and a heightened emphasis on collaboration. The company said it recently committed to increase investments in human and financial resources to multichannel capabilities and in the coming months would be challenging its suppliers in ways that could include “providing a differentiated guest-focused assortment from online-only retailers that still includes best sellers, pricing the same as online-only retailers without lowering our overall (joint business plan) margin, developing membership or subscription-based pricing online to compete with online pricing models in the market.”
The letter reminded suppliers that Target has long prided itself on being a retailer with truly collaborative vendor partnerships focused on the long term.
“You can count on us to work tirelessly toward mutually-agreed-upon goals that build your brands and business, and we ask that you help us deliver the best possible quality and prices for our guests,” according to the letter.