Amazon (AMZN) stock is down more than 20% year-to-date, as Wall Street continues to lament the e-commerce giant’s miserable margins and virtually nonexistent bottom-line earnings. All eyes will be on AMZN Thursday afternoon as it reports third-quarter earnings, but long-term shareholders should be more concerned about an all-too-familiar competitor: Target (TGT).
That’s right. Target.
A Target on its Back
The other big-box retailer aside from Amazon and Walmart (WMT) is stepping up its game for the holiday season, offering free holiday shipping on all of its items.
For years now, consumers have been shifting their purchasing habits, increasingly buying online and through mobile and tablet devices. In that arena, WMT and TGT are playing catch-up to AMZN, which has gone as far as making its own tablets and phones in the name of mobile and online sales.
Thankfully for TGT stock, Target’s not going to make phones or tablets anytime soon. That said, the Minneapolis company’s free shipping stunt is clearly an effort to take a swing at Amazon Prime, AMZN’s annual $99 service giving subscribers free two-day shipping and access to Amazon’s Prime Instant Video service (regardless of whether users actually care about streaming video or not).
I think the strategy is a heads-up play, especially since retailers are getting increasingly vicious around Thanksgiving with their pricing, promotions and deals. (Customers are getting vicious too, rioting, stampeding, and generally invoking violence in the name of line-jumping some Black Friday deals.)
By announcing its free shipping promotion now, Target is getting ahead of the Black Friday clusterfest by a full month.
TGT needs to defend its place in the consumer’s mind from traditional rivals like AMZN and WMT as well as from pesky new entrants into the space like Google (GOOG) and Uber. Google Shopping Express, the search giant’s nascent delivery service, rolled out to three major U.S. markets — Chicago, Boston, and Washington, D.C. — just last week.
Target won’t stand for these fancy-schmancy Silicon Valley types invading its turf, and with TGT ramping up spending on digital ads by 50% this season, AMZN shouldn’t take the retailer lightly. After all, the company’s strategy of eating shipping costs isn’t just a short-term thing: Target now offers free shipping year-round on online orders above $50.
TGT stock has traded more or less sideways this year — in part because TGT hasn’t yet mercilessly sacrificed its margins to the extent that Amazon does. But with wider margins and more earnings to burn through than AMZN, Target and its free shipping vow could seriously challenge Amazon’s supremacy this holiday season.
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As of this writing John Divine was long shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid.
