In recent years, Target (TGT +2.15%) has slowly realized that its chief competitors are not just its brick-and-mortar rivals. The chain has clearly come to understand that it's fighting for dollars with online retailers -- both the dedicated ones and the digital branches of physical chains.
To wage that battle, the retailer has stepped up its online game and has begun offering perks traditionally associated with pure-digital stores. Its latest offer, pegged to the start of the school year, aimed to make buying from its website if not more attractive than shopping its online rivals, then at least leveling the playing field.
The company offered free shipping in the 48 contiguous U.S. states as well as free returns in its stores. It's a move that has worked in the past and it's one the company should consider making permanent if it wants to be a true competitor to Amazon (AMZN +1.69%).
What exactly did Target do?
The company waived the shipping charges on all online orders placed before Aug. 15. The free shipping was only offered in a narrow window, but it was timed for back-to-school shopping for college students. The offer was likely very attractive to that demographic because items can be swapped or returned at the chain's physical stores, which is much easier than shipping something back from a dorm to an online retailer.
The retailer has done this before and it was a hit. The last time Target offered free shipping was for about a month leading up to Christmas, and during that period it saw online and mobile orders increase by more than 50%, GeekWire reported.
This offer has expired, but it likely produced a sales lift for the company. Source: Target
It's not quite apples to apples
Most popular online retailers offer two-day shipping either for free or when orders cross a certain price threshold. Target has opted for a slower approach that will take three to five business days for delivery. Customers can opt to pay more for two-day or even overnight delivery.
Speed of delivery may be relevant in some cases, but for back-to-school shopping it may be less important. It's also possible that free slower shipping plus the convenience of in-store returns is good enough to equal Amazon's free two-day shipping for any order over $35 and all eligible orders for Prime customers.
In the long run, however, in order to truly compete with Amazon (and other online rivals) Target needs to equal its delivery time, come close on its prices, and then hope that in-store returns tip the balance in its favor.
Target needs to build to this
Ultimately, Target has to move to offering free two-day shipping. It does currently offer free shipping for orders over $25 and for users of its branded credit card. That's a start, but it's the same slow delivery that was offered during the back-to-school promotion.
Amazon has made two-day shipping a standard and it has built out the relationships and shipping centers needed to make that happen. The online retailer even delivers on Sundays and it's so successful at meeting the two-day window that placing an order is nearly as sure a thing as picking up an item in a store.
If Target wants to compete for online customers it needs to ultimately match its rivals' shipping offers. That will take time and it makes sense to cherry-pick times of the year to make the offer as it builds capacity.
Ultimately, though, these short-term free-shipping deals have to become the standard and the three-to-five day delivery has to move into meeting the two-day standard. That's the only way the chain can compete, but if it matches Amazon's offer, Target's powerful brand name and ability to market to in-store customers should make it a player.
The Christmas results make it very clear that online shoppers are willing to buy from Target. They just need to know that they are doing so on reasonable terms.
