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Target's Learning How to Survive in the Age of Amazon

By Travis Hoium – Updated May 26, 2017 at 3:45PM

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Target is looking to new brands to stay relevant -- and it may be working.

Big-box retailers like Target (TGT 1.09%) and Wal-Mart (WMT 1.76%) are some of the most affected by the changing retail landscape, highlighted by Amazon's (AMZN -0.85%) growing dominance in e-commerce. But there's still value in brick-and-mortar retail stores if companies can figure out how to bring value to customers while augmenting their online purchases. 

Rumors that Target would buy Casper earlier this month were strange for a company that's never been a mattress company. Instead of buying Casper, it led the company's funding round.

When you look at it through the lens of customers moving to online retail and going direct to brands and manufacturers -- like Casper -- the deal could make some sense and be a blueprint for the future. In one move, Target could create a showroom for Casper while also benefiting from the company's online business model. And with some other interesting partnerships starting to pay dividends, we may see Target making an important change in its business model. 

Woman looking at electronics items in a store.

Image source: Getty Images.

Amazon isn't the threat Target needs to worry about

There's no question Amazon is a disruptive force in retail and Target and Wal-Mart need to adapt with more online offerings for customers to compete. But I don't think Amazon is the real threat to the big-box model long-term. 

I wrote earlier this year that brand companies are now finding it easier to launch and thrive in a direct-to-consumer model and retailers who are trying to keep sales in-store are struggling as a result. And for these direct-to-consumer companies, Amazon isn't their path to consumers; they go directly to the source. Think of companies like Dollar Shave Club, Blue Apron, Casper, Harry's, and Bevel, just to name a few. 

Rather than fight the direct-to-consumer trend, Target appears to be embracing it. The company has partnered with Bevel and Harry's in men's grooming, and they appear to be very successful partnerships so far. The brand companies get a foot into retail, expanding their market very quickly, and Target gets new, hip products and sometimes a stake in their potential upside. 

Target has said that it's going to invest more than $7 billion in capital over the next three years and focus its growth efforts on over a dozen exclusive brands. If Target can become the exclusive retailer for both internally owned brands and companies it has a stake in, that could be a great way to leverage the company's retail footprint and still not miss out on the direct-to-consumer and online retail trends. 

Are more Casper-type deals in Target's future? 

Target has had its fair share of challenges adapting to the new world of retail, mainly in making missteps with its own online store (which is still behind the competition). If Target can improve stores to match consumers' shopping needs, partner or buy growing exclusive brands that sell online and can showroom in existing stores, and improve its online shopping experience, it could be a good proposition for customers and investors. 

Target still has a place in the world, whether it's parents urgently needing diapers or those who want to grab some toiletries and a Starbucks coffee on their way to work. And understanding where the company fits as a provider of necessities and a showroom for brands would be a welcome change for the retailer. Whether consumers are shopping in-store or online, Target should just want them buying products it's providing or has a stake in. And buying into brand start-ups may be a great way to leverage the big-box business and finally create a future in a retail world Amazon seems to be dominating more by the day.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Starbucks. The Motley Fool has a disclosure policy.

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