Warehouse-Club Like experience at Target - What is the trend?
We all witnessed the price war during the holiday season between Walmart, Target and Amazon over the ecommerce space. Now an interesting move by the 2nd largest US discount retailer Target called "The Great Save". Starting Jan 3rd Target has setup a "warehouse club like experience" in its 1,740 stores. The idea is to provide the customers a variety of bulk size packages of everyday necessities like toilet paper. The most important part is that Target is claiming to provide the warehouse club like experience and the savings without charging any warehouse membership fees. What is the trend?
Target's profit took a hit during the recession as the customers started buying basic necessities than the trendy and optional cool stuffs. Target's move to "The Great Save" is a step towards winning back the customers who are value conscious. What if this concept of buying bulk in a retail store without paying the membership fees becomes a huge success?
Small scale buying for home customers: The small scale buying for home customers who want to become members or extend their memberships at Costco, Samsclub and BJs would be thinking before extending. Target can probably tap them easily. However, Target has said that they don't plan to extend "The Great Save" beyond Feb 21. I think they are testing waters. If it is a huge success, why wouldn't Target keep this year around.
Medium scale buying for small business customers: The medium scale buying for small business customers are going to continue to be loyal to their Costco, Samsclub and BJs respectively. They are not going to shift their buying to the new "The Great Save" warehouse club like experience as it may not cater to their needs.
How would true membership based warehouse clubs react to this? Create even bigger bulk size packages, become more efficient in supply chain, increase customer basket size and put more price pressures on the CPG companies. You may recall what happened between Coke and Costco during the last three months. In November, Costco put a sign in its store saying they are not carrying Coke products as the negotiations between Coke and Costco failed. In December, Coke is back at Costco.
How would other retailers react? It is going to be interesting. What if they follow suit and sell bulk packages in retail floor? Will Walmart cannibalize Samsclub by introducing bulk packages? Will Grocers like Safeway, Publics, etc focus on small packages? It will be an interesting situation.
What are your thoughts?
