Fast Five Shorts | Pro Or Con: Target Exploring A Factory-Direct Model?
This segment on the Retail Fast Five podcast, sponsored by the A&M Consumer and Retail Group, Simbe, Mirakl, Infios, Clear Demand, and Ocampo Capital, breaks down Target's factory direct shipping test.
Target explores factory direct shipping similar to Temu and Shein's model for apparel and home goods. Chris loves the defensive move and believes Target's brand credibility can win, while Anne questions if Target has lost its design edge and worries about competing on price against Walmart and Amazon.
For the full episode head here: https://youtu.be/-J5sCVAKsfQ
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#target #factorydirect #temu #shein #retailsourcing #directshipping #retailstrategy #brandcredibility
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Transcript
Target is exploring the factory direct shipping model used by Temu.
Speaker A:According to Bloomberg, Target is testing a service that delivers products directly to customers homes from factories.
Speaker A:Similar to the Chinese e commerce platforms Temu and Shein.
Speaker A:The effort aims to broaden Target's range of low cost offerings, primarily including apparel, household goods and non food items.
Speaker A:And it's still in its early stages.
Speaker A:Most online orders from Target and other US Retailers get sent to warehouses before going to customers via truck delivery.
Speaker A:By shipping directly from production sites, Target can offer lower prices and potentially increase market share among discounters.
Speaker A:The X factor remains the US Government's move to close the so called de minimis exception, which for years allowed Shein and Temu to capture market share by shipping orders of less than $800 to US customers duty free.
Speaker A:The change has eroded performance at both companies and could also impact direct shipping efforts of Target and other retailers.
Speaker A:Nevertheless, Chris, you have taken a few shots at Target on this podcast recently.
Speaker A:So are you pro or con Target exploring this factory direct model?
Speaker B:I I actually love this.
Speaker B:I think it's a great defensive move as well as a great offensive move.
Speaker B:Because you know, Target, to me, yeah, it's, I swear to God.
Speaker B:And like I know it surprised me when I read it.
Speaker A:Even with the, even with the like de minimis exceptions being reconsidered by the government.
Speaker B:Yeah, I think that's, I think that's something we have to figure out.
Speaker B:But I think that can be calibrated in terms of pricing and what the expectations are for the customer that you set over time too.
Speaker B:And God knows where those things are going to fall out in the long run too.
Speaker B:But you know, I love it because I think Target has the sourcing and brand credibility in the apparel and home space to do this better than anyone, to do it better than she and Timu, honestly.
Speaker B:And they can do it in a way that keeps the price value relationship strong in the minds of their consumers.
Speaker B:In fact, and I you might not remember this, I don't even remember how long ago it was, but I mentioned on a previous podcast how the president of Target Sourcing Services and I, Tim Mantel was his name at the time.
Speaker B: Back in: Speaker B:And the reason, and the reason I love it is because for the categories for which Target is known, particularly home and apparel, it provides the opportunity to never be out of stage stock online.
Speaker B:That's what I like about this and that's a mental flip that I would recommend everyone listening to this podcast do in assessing this headline.
Speaker B:Think about what that means if you could set up your sourcing structure to go direct from factory to never be out of stock online.
Speaker B:Sure, you have to communicate the expectations and the cost of the consumer, but that's a really advantageous position to put yourselves in.
Speaker B:And Target has the reputation to do that better than anyone in home and apparel.
Speaker B:So that's what I like about this.
Speaker B:That's the customer value, there's growth that growth that can come from this and minimally.
Speaker B:I think the other point about this I mentioned at the outset, it stems the slow breed from Temu and Shein and also it helps your product development too because you're going to get faster and sharper on the small batch production runs.
Speaker B:You can run through this as well before you place the bigger bets on your assortment, which are quite, very substantial bets that you have to get right when you're deploying that amount of product into a store.
Speaker B:So that's my take.
Speaker B:What do you think?
Speaker B:Do you like it just as much?
Speaker A:I don't know.
Speaker B:You're not as big on it.
Speaker B:Wow.
Speaker A:I'm not.
Speaker A: 're looking at target back in: Speaker A:I, I would, I would challenge whether or not Target still has the, the credibility in these categories that they did back then.
Speaker A:I think that, you know, we mentioned, we talked to, we talked to Ethan Chernofsky recently.
Speaker A:This morning we were recording about like, you know, what, what, what should retailers be thinking about doing?
Speaker A:And I, I think Target still has this challenge of really getting back to putting a flag in the sand and really standing for something and their perspective on product and especially in home categories that they were really big in.
Speaker A:Because I think you look at the com.
Speaker A:The competition, Chris, you look at temu, you look at she, and you look at Walmart.
Speaker A:You look at Wayfair, like they're doing a really great job right now of providing product that is unique, that has a point of view that isn't just like run of the mill.
Speaker A:We're trying, even Amazon, like we're trying to just replicate it and make it as big and bold as we can.
Speaker A:I think you're seeing more competition in this space and I worry that Target going this route now is a little, is too little too late and you're going to like, you're, you're now competing on price and I don't think that's something that Target's going to win on when it comes to these products, I think Walmart, Amazon can offer a better price point and comparable product.
Speaker A:And so that's what I worry about here.
Speaker A:Like, I think it's a good move from Target to get into this and do this, but I question whether or not they're in a position to win when you start putting them in a price race for product against Amazon and Walmart.
Speaker B:Wow.
Speaker B:I'm blown away.
Speaker B:Okay, so hold on a sec.
Speaker B:So you're basically saying that you don't think Target has the brand reputation anymore in home and apparel.
Speaker B:The Target reputation, the design for all reputation, the brand ethos of expect more, pay less to be able to pull this off.
Speaker B:That's what you're saying.
Speaker A:I, I don't know.
Speaker A:I really think it's a question in your head, right?
Speaker A:It's a question in my head that is going to.
Speaker A:Is this, is this a moat that I'd be working on?
Speaker A:I mean, if it were me, I think I'd be putting more of my resources towards building up the marketplace so that they're showing up in more places.
Speaker B:Oh, 100%.
Speaker B:I'd be doing that too.
Speaker B:Yeah.
Speaker B:It's not an either or question.
Speaker A: king on not having, you know,: Speaker A:It's really building this out.
Speaker A:Right.
Speaker A:And using my creative like that, that magic that used to be there for Target and really applying that to the products that, that, that you are even talking about.
Speaker A:Like, how do I.
Speaker A:Why do I go to Target?
Speaker A:I go to Target because they're bringing design to the masses.
Speaker A:They're really like, edging and putting a, like putting their place, their Target into design.
Speaker A:And I feel like right now this just feels like a total move towards, like, how do we just stay competitive, not focused on how are we differentiating and being that Target that we used to be.
Speaker B:Right.
Speaker B:And let me be clear too.
Speaker B:I 100 agree with you on the marketplace.
Speaker B:In fact, like, I'd be hitting the gas pedal to the metal on the marketplace.
Speaker B:And I think this is more of a slow grow.
Speaker B:But the important point here that I want to make sure is, is you have a question about whether.
Speaker B:So do you think they can get it back?
Speaker B:Do you think they can get their brand cache back?
Speaker B:Or do you think, are you worried that it's gone?
Speaker B:Because.
Speaker A:No, like, I would think I would.
Speaker B:Think with a merchandising regime change or something, you could get somebody in there that, you know, understands what this brand is about and get it back.
Speaker B:But, you know, do you think the same.
Speaker B:Are you hopeful?
Speaker B:I mean, what.
Speaker A:Yes, absolutely.
Speaker A:I absolutely think they can get it back.
Speaker A:I think that the, that crazy you're saying this, this, this leadership at Target right now, I think is.
Speaker A:Has become so focused post pandemic on, oh, my God, we got to compete, we got to keep that, that, you know, momentum going that we saw during the pandemic and that the focus has shifted from being uniquely Target to trying to compete with our competitors.
Speaker A:And I think that in order for Target to turn around, they are going to have to focus on being uniquely Target again and prioritizing what that means as a culture at Target, as a.
Speaker A:And I didn't mean for this to be like the Target turnaround story by any means, but.
Speaker A:No, it's going there.
Speaker A:But yeah, I think, I think that's what really where Target has to go in order to kind of come back and see this turnaround.
Speaker A:And I don't know that that's happening with things staying the way that they are and with, you know, these types of investments being as heavily focused on as they are.
Speaker B:Yeah, that's, that's actually why I like.
Speaker B:That's kind of why I like the move, too, because I think it actually, if you had good merch, if you had the merchandising turned around and you got the brand back, I think it actually gives you a bullet in the chamber to absolutely what Target is about even more.
Speaker B:And a lot of people online were, you know, kind of coming at me saying, like, I think they need to invest in stores and 100.
Speaker B:They need to get their store experience right, too.
Speaker B:But I think you've got to, you got to position the bets, and this is one in the portfolio of bet and capital that I think actually makes a ton of sense.
Speaker B:But.
Speaker B:Wow, I did not expect you to say that and that that's a big shot call right there.
Speaker B:I mean, you know, a big shot fired actually, you know, in terms of where Target's brand stands right now.
