Target Goes Big on Discounts This Holiday Season, Bringing Some Headaches

  • Toy survey reflects aggressive effort to lower prices
  • Target promotions on Cyber Monday lead to website delays

Cyber Monday Surge Causes Outages at Target, PayPal

Target Corp. Chief Executive Officer Brian Cornell has gotten more aggressive with holiday discounts during his second year of a turnaround effort, a strategy that is undercutting some rivals on price while also bringing headaches.

The company offered a 15 percent discount on almost all its products online Monday, a more widespread deal than in past years. It also lowered prices on many apparel and toy products by 30 percent, shifting away from the buy-one-get-one-discounted approach it used in 2014. The promotions were so popular that Target drew twice the traffic of its previous record-setting day, forcing the retailer to throttle back access to its website.

Target also has offered some of the industry’s lowest prices on toys, a key category during the holidays. Its toy prices were 1.3 percent below those of Wal-Mart Stores Inc. during Black Friday and 5.2 percent cheaper than Amazon.com Inc., according to an online survey by Bloomberg Intelligence. Target also undercut Toys “R” Us Inc. and Sears Holdings Corp.’s Kmart chain, the survey found.

While those types of discounts squeeze profit margins, they could help Target improve its reputation and lure away customers from rivals, said Mariam Sherzad, an analyst at Bloomberg Intelligence.

“For a long time, Wal-Mart was associated with having the lowest prices,” Sherzad said. “If Target is able to brand itself as being well-priced, it could steal some Wal-Mart customers. It could also help make online sales a bigger piece of the pie. And last, it’s a fight to defend its customers from Amazon.”

Pricing Tools

Wal-Mart and Amazon remain formidable on price, though, and the companies question whether the toy survey accurately reflects their discounts. Wal-Mart said that the limited subset of products measured -- the study compared 37 identical toys sold at Target and Wal-Mart -- didn’t show its full range of pricing.

“When we look at our assortment on Walmart.com across the board, we know we meet or beat our online competitors’ prices four out of five times,” said Bao Nguyen, a spokesman for the company. “This is thanks to the smart pricing tools our technology teams have developed.”

Amazon, meanwhile, said the pricing survey didn’t measure its Lightning Deals -- discounts offered over a short period of time -- so the study didn’t give a fair picture.

Popular Gifts

Still, Target’s price cuts show a renewed push to be competitive in toys, which are seen as a major battlefield this year. Many parents are expected to shift away from getting tablets and video games for their kids, opting instead for “Star Wars” action figures and board games.

The fourth quarter typically accounts for half of Target’s annual toy sales, showing the importance of the holiday season. One of the first items to sell out at Target stores was a 3-foot stuffed bear for $10.

Target also has been offering steeper discounts than Amazon and Wal-Mart in housewares, said Guru Hariharan, chief executive officer of Boomerang Commerce Inc. And it’s been closely matching its competitors prices on video games and movies, he said.

Target lagged behind its competitors in electronics, where Wal-Mart and Amazon had better prices, according to Boomerang. Amazon had the best price in health and beauty products, the firm found.

Sales Impact?

To cope with Monday’s traffic surge, Target forced many users to wait for access to the website. Some visitors to Target’s site were greeted with the message: “Please hold tight. So sorry, but high traffic’s causing delays.”

The delays may have cost Target some sales, Oliver Chen, an analyst at Cowen & Co., said in a report.

Neiman Marcus Group Inc. also suffered e-commerce trouble in recent days. The department-store chain’s website crashed on Friday and Saturday, forcing it to extend Black Friday deals into Sunday. Wal-Mart’s website had difficulties on Black Friday, the traditional kickoff to the holiday season, Chen said. An overload of demand slowed the checkout time for some shoppers, he said.

All of the biggest online retailers have been tracking one another’s prices more closely this year, Hariharan said. When one of them makes a move, others usually aren’t far behind, he said.

“It is like an arms race, where one makes a move and everyone follows,” he said. “This holiday is a lot more dynamic than we’ve seen in the past.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE