Target, the Minneapolis-based retailer, has announced the launch of a new paid membership program called Target Circle 360. The move comes as the company looks for ways to reverse a sales decline and compete with Amazon Prime. Target Circle 360 will offer unlimited free same-day delivery in as little as an hour for orders over $35, as well as free two-day shipping. The program will launch with a special offer of $49 per year for new members from April 7 through May 18, and will cost $99 per year thereafter. However, Target Circle credit card holders can sign up for the lower price at any time.
Target’s current loyalty program, Target Circle, already has over 100 million members who shop and spend more than five times more than non-members. The launch of the new paid program is part of a series of moves announced at Target’s annual investors’ meeting to rejuvenate sales and traffic. The retailer also plans to refresh its stores and expand its successful store-owned brands. Additionally, Target aims to build more than 300 new stores over the next decade.
The decision to introduce a paid membership program comes as Target faces cautious spending from its shoppers due to inflation and high borrowing and credit card costs. The company reported its first annual decline in sales in seven years, with a 1.7% drop. However, Target delivered a 58% increase in fourth-quarter profits, surpassing Wall Street expectations. The retailer achieved this by cutting costs and maintaining a lean inventory during the critical holiday season.
Target’s vulnerability compared to other big box discounters like Walmart is due to the fact that more than half of its annual sales come from discretionary items such as toys, fashion, and electronic gadgets. Many Americans have reduced spending on these items. Even luxury shoppers have become more discerning, as evidenced by Nordstrom’s announcement of potential sales declines in the current year.
In addition to external challenges, Target has also faced internal obstacles. The company had to correct its inventory levels for several quarters after being burdened with heavily stocked warehouses in 2022. This inventory glut forced Target to heavily discount products to clear out excess stock. To strike the right balance between value and trendy goods, Target recently launched a new collection called Dealworthy, featuring nearly 400 everyday basics at affordable prices. The retailer has also seen success with exclusive collections from designer Kendra Scott and its own kitchenware brand, Figmint.
To enhance its loyalty programs, Target has made its free Target Circle program easier to use. Members will now see deals applied automatically at checkout, eliminating the need to search for or add individual offers. The company has also renamed its Target RedCard credit card program to Target Circle, making it easier for credit card holders to access Target Circle benefits, such as an extra 5% discount on top of the Target Circle deals. Credit cardholders will also have an additional 30 days to return items, extending the regular 90-day window.
When asked about competing with Amazon Prime, Target’s CEO Brian Cornell emphasized that the company is not starting from scratch. He believes that Target can leverage the power of its brand and the Target Circle brand to compete effectively.
Target reported strong financial results for the latest quarter, with net income of $1.38 billion and revenue of $31.92 billion, surpassing estimates. However, traffic for both stores and online combined fell 1.7% during the quarter, although this was an improvement from the previous quarter. For the current quarter, Target expects a comparable sales decline of 3% to 5%, in line with analysts’ estimates. The company anticipates comparable sales to remain unchanged or increase by up to 2% for the full year.
In conclusion, Target’s launch of the new paid membership program, Target Circle 360, is part of its strategy to boost sales and compete with Amazon Prime. The program will offer unlimited free same-day delivery and free two-day shipping. Target aims to leverage its existing loyalty program, Target Circle, which already has over 100 million members. The company is also focusing on refreshing its stores, expanding store-owned brands, and building new stores. While facing challenges from cautious consumer spending and internal inventory issues, Target remains optimistic about its growth prospects.
