Target Bets On Low Prices With Smartly Brand

0 0 Julius Choudhury October 17, 2018 Edit this post

Pictured: Customers leave a Target store on Aug. 14, 2003 in Springfield, Virginia. Photo: Alex Wong/Getty Images

By Timothy Green, The Motley Fool.

Retailer Target's (NYSE:TGT) strategy over the past couple of years has involved becoming more price competitive while launching a slew of exclusive brands. The company has introduced more than 20 owned and exclusive brands as part of this strategy, and its recent results speak to its efforts to lower prices. Store traffic rose 6.4% in the second quarter, while comparable-store sales grew by 4.9%. That gap was in part due to lower pricing.

Target is hitting both priorities with the launch of its new Smartly brand. Smartly encompasses more than 70 items, including hand soap, household cleaners, and razors, priced mostly below $2. Smartly adds to Target's existing stable of household brands, bringing lower prices that may help the company win market share from dollar stores, Walmart, and even Amazon.com.

Going after the cost-conscious consumer

Target already sells various household products under its Up&Up brand, and prices for those products already beat name brands in many cases. One example: A 7.5-ounce Up&Up hand soap costs $0.79 on Target.com, compared with $0.99 for an equivalent product from Softsoap.

Smartly will overlap with Up&Up to a degree, so it will need to be significantly cheaper to avoid cannibalizing the Up&Up brand. Smartly products will start at $0.59 -- that's probably the hand soap -- and go up to $11.99, with the majority available for under $2. The products will be available in store and online starting on Oct. 14.

This new brand could help Target win shoppers who have turned to dollar stores for household essentials. The three biggest U.S. dollar-store chains opened more than 1,800 new stores in 2017, bringing the total store count close to 30,000. With Smartly, Target is trying to tap into some of that demand of ultra-low-price products.

Smartly could also help Target win some market share from Walmart, which is more known for low prices than Target. Walmart has been getting more aggressive with prices as well, so Smartly may be part-defensive, part-offensive on Target's part.

Free, fast shipping

Amazon is the other major competitor that Target is going after with Smartly. Amazon has launched a slew of its own private-label brands, and its Prime membership service continues to be extremely popular.

Target's Restock service may be the company's ace in the hole. Restock is a home-essentials delivery service that offers free next-day delivery for those paying with a Target REDcard. Many Up&Up products are available through Restock, and Smartly will presumably join the service when it launches.

If Target can beat Amazon on price with Smartly, which looks likely given that its Up&Up brand is competitive, the company will be able to offer lower prices on those products and faster shipping than Amazon Prime, with no annual membership fee or shipping fees of any kind for REDcard holders. It's hard to see how the company won't win market share among cost-conscious consumers.

Smartly is a continuation of Target's plan to win market share by lowering prices. Combined with its aggressive e-commerce initiatives such as Restock, this new ultra-low-cost brand has the potential to be a home run for the retailer.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.