Is Apple the Answer to Target's Problems?
In the wake of a disappointing December sales report, it is clear Target has its work cut out.
The discount retail chain has tried to hit up designers such as Missoni andJason Wuto try and reignite the fashionable image that once drove its business. It's next move may be to partner with retail's latest darling: Apple.
The Apple Insider blog is reporting that Apple will be opening new store-within-a-storelocations in select Target locations this year. This will enable Apple to expand its retail reach into smaller metro areas.
It's also a great way for Target to juice its electronics business. After all, weak electronics sales were one reason behind Target's latest shortfall in sales, which prompted the retailer to cut its earnings forecast.
According to Apple Insider, which cited an unnamed source familiar with Apple's plans, Apple plans to begin operating branded areas within 25 larger Target stores in locations that can't support a standalone Apple store.
Target, the second-largest discount retail chain in the U.S. after Wal-Mart Stores , operates more than 1,700 stores in the U.S., while Apple operates about 245 stores in the U.S.
Apple already operates a "store within a store" at more than 600 Best Buy locations, according to the report.
But a partnership with Apple isn't a silver bullet. After all, Apple once had partnerships with Sears , Circuit City, Computer City,Office Max, and CompUSA, and some of those retailers aren't even operating any longer.
And Target has been selling Apple's iPod and iPad already. Still, the partnership will likely give Target access to a wider range of Apple products, including laptops, and the partnership even may be beneficial for Apple, by making Apple products more available to new consumers that the company hasn't been targeting aggressively.
The bigger debate for Target investors to consider is whether the discounter's PFresh grocery format is working out the way the retailer intended. The company has been devoting about 50 percent to 200 percent more space in its stores to fresh produce, meats, and baked goods.
Target has argued that offering more food will drive more shoppers to the store and once there they will buy more merchandise, but that doesn't appear to be happening.
It also may be limiting how much space Target can dedicate to higher-margin items such as the apparel and home furnishing categories, which traditionally had been one of the Target's points of strength.
Also, categories such as food put more of an emphasis on price, and with Wal-Mart looking to reinforce its image as the low-price leader, it may not be the position Target wants to be in. In the past, Target's attraction was that it offered trendy styles for less.
Target wasn't immediately available for comment.