Why Target Is Fighting the Fire With Fire

The following video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith and senior technology analyst Eric Bleeker discuss topics around the investing world.

In today's edition, Austin talks about Target's recent decision to stop selling Kindle devices in its stores. The company will continue to sell Barnes & Noble's Nook device, as well as Apple's iPad through the mini-Apple stores within larger Target locations. Investors shouldn't misread this as a sudden vote of confidence in the Nook following the cash injection from Microsoft -- it's big-business politics. Target simply doesn't want to feed the bricks-and-mortar-crushing beast that is Amazon.com any longer. Target has already gone as far as trying to get suppliers to agree to give it the best price so it can't be undercut by e-tailers.

Target's strategy underscores the massive trend that could result in "The Death of Retail," You can read more about this massive shift today in our special analyst report. It's totally free, but it won't be forever, so click here to read more while you still can.

Austin Smith and Eric Bleeker have no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Microsoft, and Best Buy. Motley Fool newsletter services recommend Amazon.com, Microsoft, and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (3)

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  • Report this Comment On May 08, 2012, at 6:25 PM, SimchaStein wrote:

    Goods points. But the main reason is no margin. NO WAY could Target can make 1 cent of profit on 'Fire' b/c it's cost of goods = sales price.

  • Report this Comment On May 08, 2012, at 9:17 PM, brinkov wrote:

    The kindle fire is a loss leading device with very low margin that simply acts primarily as a vending machine for amazon's store and services. Why would target want to buy into that? But there are a couple other points: 1. Target is positioning itself as a catered mass retailer that is slightly more hip and design focused than say walmart etc. cheap but selective options that are chosen for quality... They dont sell every model of good, but pick and choose what shows up on the shelves, so not carrying the kindle fire could also be just a choice to position with apple and nook products which are better designed pieces of hardware. The nook may not have as broad an ecosystem as kindle, but it us a better piece of hardware... And better designed, a better reading experience, etc. 2. Also, the other aspect to this is, competition. Target may actually have some market data that their number 1 competitor based on market positioning and consumer demographic is really amazon more than say even walmart or kmart, etc. if you look at targets retail strategy, they are building out flagship stores in the hearts of cities downtown now, not just in the burbs... They are moving towards becoming a more hip, urban retailer of choice, rather than a pure suburban big box store. So their target demographic is a younger urban crowd... Also if you look at target's online business, it has grown alot and they are possibly moving into competition online with amazon... There are actually products available, certain designs or models of product that you can get at target.com that you cannot find on amazon... I would not be surprised if target has market research that says amazon's consumer is the same as their own, and the primary target of their business growth in america... Given amazons play of online shopping advantages (low overhead, etc.), its a smart move for bricks and mortar retailers like target, barnes and noble, and best buy to play their own advantage card: their showrooms, in store support and service, and bricks and mortar shopping experiences... These are things amazon would have trouble replicating and competing with on the sane field...

  • Report this Comment On May 09, 2012, at 1:57 AM, Strayjax wrote:

    Uh...there has been an 8GB (same as the Fire) Nook Tablet available for months that is the same price as the Fire. Good vid other than that bit of misinformation.

  • Report this Comment On May 09, 2012, at 6:57 AM, TMFBWItime wrote:

    @strayjax

    I apologize for the error.

    Thank you for your comment, fool on!

  • Report this Comment On May 09, 2012, at 11:54 AM, Popnfresh100 wrote:

    There's a throwaway line in the notes to Barnes and Noble's recent financial statements:

    "The Company also pays certain vendors who distribute NOOK™ a commission on the content sales sold through that device."

    Does Amazon do this as well? They wouldn't be obligated to disclose the practice as Kindle sales are only a small percentage of revenue?

    If Amazon follows this practice as well, then the recent changes to the agency model may be triggering contract renegotiation. If they don't, then I can see why Target would favor the competition.

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