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How Target Is Leveraging Existing Stores to Compete With Amazon

By Travis Hoium - Feb 1, 2018 at 7:31AM

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Amazon will deliver to your home, but Target wants to deliver to your car.

As Amazon (AMZN -2.78%) moves its e-commerce business closer to customers by acquiring Whole Foods and launching Amazon Go, Target (TGT -0.54%) is finally learning to leverage its retail capabilities to expand both brick-and-mortar retail and e-commerce. 

I'm not talking about competing head-to-head with Amazon, something it really doesn't do in its current form. But Target can compete by offering services Amazon can't -- and its new offerings are doing just that. 

Man shopping on smartphone with credit card in hand.

Image source: Getty Images.

Get your purchase without leaving the car

In the Minneapolis/St. Paul area, Target has launched a service called Drive Up, which is where you order online, let Target know when you're on your way to a store, and pull into a pre-defined parking spot in the front of the lot. From there, a worker brings your order to you -- you don't even have to get out of your car if you don't want to. 

The service is like shopping at a Target store without entering the store. It even leverages a feature called the shopping list, which makes it easy to prepare and finalize your order at a convenient time for you. 

Target has finally figured out a way to use its brick-and-mortar presence to service customers and compete with online retail. Given my experience with the shopping list and drive-up service, it's extremely compelling in its convenience versus ordering from Amazon online, especially for parents, who are core customers at Target. 

Taking a page out of Amazon's book

One of the reasons I think the shopping list and drive-up features are so important for the company is that they eliminate points of friction for consumers. Especially here in Minnesota, I don't want to have to get out of my car to brave the winter cold, but if a Target is on my way and all I have to do is drive up and someone else loads my car, that's a very convenient service.

Amazon allows customers to order online and never go into a store, but the e-commerce giant doesn't win on price, it wins on convenience. What if Target can win on both, using lower prices at a store and bringing them to consumers in a convenient way? 

As Target reinvents its business, it has also launched urban stores with a smaller footprints and fewer items than a traditional Target store. But the essentials from clothing to pharmacy to groceries are still there. 

Now, envision a future in which a Target store is conveniently located for millions of urban customers, whether they're driving or walking by. The drive-up feature could eventually become a core feature for Target, serving customers regardless of whether they actually enter a store. 

Target hasn't figured it all out yet

As far as Target has come in just the last few months, there's still a lot of work left to do. Inventory in the Target app is nowhere near what it is within stores. And the online ordering system seems to have its fair share of glitches with filters and store availability. But these are technical problems that Target should be able to resolve over time. 

What's encouraging for investors is that Target is starting to realize how to leverage its distribution and brick-and-mortar network to compete with digital retailers. Now, it has to turn that advantage into revenue and earnings growth, which I think it can do in 2018. That's why I've added an outperform CAPScall on my CAPS page

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