By  on January 22, 2012

Target Corp. to its vendor partners: Better pricing strategy is needed.

A research note by Deborah Weinswig, retail analyst at Citigroup, said Target recently sent a letter to its vendors indicating that to compete effectively with Amazon and Wal-Mart, it was changing its pricing strategy and is challenging its vendors to “work with [Target] to develop an assortment and pricing strategy that will allow Target to be competitive and profitable across all channels.”

The letter was sent to Target’s “most important vendor partners” and was signed by chairman, president and chief executive officer Gregg Steinhafel and executive vice president for merchandising Kathee Tesija, according to Weinswig.

A copy of the letter could not be obtained, but certain highlights were noted in the research note. According to Weinswig, Target emphasized the need for “brick-and-mortar retailers to partner with their vendors to ensure that their stores are not used as ‘showrooms’ for online-only retailers.”

In one of the excerpts, Target said it isn’t willing to let online-only retailers use its stores as a showroom and then “undercut our prices without making investments, as we do, to proudly display your brands.”

In another excerpt, Target’s letter said that on possible vendor collaboration ideas, the specifics of the programs could include differentiated guest-focused assortments from online-only retailers that still include best sellers, pricing the same as online-only retailers and “developing membership- or subscription-based pricing online to compete with online pricing models in the markets.”

In her analysis, Weinswig concluded that the industry should expect more brick-and-mortar retailers to rethink their pricing strategies this year, as well as increasingly demand support from vendors to better compete with lower-priced online retailers.

She explained that the membership- or subscription-based model Target refers to includes programs such as Amazon’s Subscribe and Save, which offers discounts on regular shipments of merchandise.

The analyst also noted that price transparency has shifted due to the Internet and mobile commerce. In addition to Target’s letter, she noted that J.C. Penney Co. Inc. is also shifting its pricing strategy,implementing an “Everyday Fair Value” model compared with the promotional pricing associated generally with department stores.

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