• Retail Dive

Target slashes prices as competition heats up

Dive Brief:

  • Shares in Target, Walmart and Costco got hit Friday (and then began to recover) after Target posted a note to shoppers that it is lowering prices "on thousands of items, from cereal and paper towels to baby formula, razors, bath tissue and more," according to a blog post.

  • The retailer said that its teams looked at the products "most important" to its customers and made sure they’re priced right daily. Target is sweeping away "all those little signs and ads letting you know about the 'Weekly Wow!' or 'Bonus Offer'" in favor of "simple, easy messages." "We’ve eliminated more than two-thirds of our price and offer call-outs so you can more easily spot the savings," the company said.

  • The company isn’t entirely ditching promotions, just "making sure to offer only our best, most compelling sales — when it makes the most sense for our guests."

Dive Insight:

Target’s move follows months of speculation about a price war on groceries and consumer products spurred in part by the expansion of no-frills grocery store Aldi and the launch of Lidl — both German retail companies that focus on private labels, drilling down prices on basic goods like peanut butter by as much as 30%.

The retailer’s executives for months have said that the company would lower prices on consumables, even as it launched a concerted effort to upgrade apparel and home goods merchandise. Walmart similarly has promised to double down on its "always low prices" mantra, and so far research has shown that it’s meeting the Aldi/Lidl challenge with aggressive pricing.

"We want our guests to feel a sense of satisfaction every time they shop at Target," Mark Tritton, Target executive vice president and chief merchandising officer, said in the blog post. "Part of that is removing the guesswork to ensure they feel confident they’re getting a great, low price every day."

The company spent months looking at its entire assortment, with a focus on offering the right price every day and simplifying its marketing to make low prices easy to spot, he said. "And guests are taking note, appreciating much easier, more clear — and more consistent savings — at Target," he said.

While Target has a reputation for being higher priced than Walmart, that’s not quite true, according to Profitero vice president of strategy and insights Keith Anderson. It’s more that Target's partnerships with fashion and interior designers like Victoria Beckham and Nate Berkus, along with their own private label merchandise, mean customers bulk up their carts with pricier things. Merchandise differentiation has been a key Target strategy since it lost a bruising price war with Walmart in the 1980s.

"I don’t know that they really struggle to compete on price the way some people perceive them to," Anderson said. "Target does carry items closer to the 'better' and 'best' category, but on exactly the same item, Target really is competitive. People walk into Walmart and walk out pleased about the prices, and people walk into Target and walk out with things they hadn’t planned on buying, so they perceive Target as more expensive.”

In addition to partnerships with designers and brands, Target is working hard to bolster its own brands, with plans to roll out 12 new labels over the next 18 months, using the same research and design approach applied to developing its successful new Pillowfort and Cat & Jack kids lines. "I think their goal is to build their in-house brands more," Maya Mikhailov, chief marketing officer and co-founder of GPShopper, told Retail Dive. "Target was always known for design, earning the moniker 'Tar-zhay.' Their new streak appears to be focused on re-energizing that. It seems to be a natural extension of what their original brand promise was."

The move announced Friday is a way for Target to blast out its competitiveness in food and consumer product goods to shoppers who also value its "cheap chic" merchandise. While Wall Street punished the retailer around mid-day, shares lifted later on. "In our view, [Target] is following its strategy to invest in price and is taking strides to improve its value perception and increase pricing clarity, which we view as significant opportunities for the retailer to grow trips, basket, and customer loyalty," Cowen & Co. analysts told Retail Dive in an email.

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