As Wal-Mart gets the marketing and design bug and usurps the long-standing power of its famously ruthless buying division to take a more collaborative approach with suppliers, Target is going the other way. "Wal-Mart is softening," one supplier to both retailers put it. "Target is hardening."
The shift comes as Target expands its private-label brands to improve margins (see story at right) and undertakes the daunting challenge of expanding the food section at most of its 1,418 stores.
Suppliers of both large and small brands said Target has demanded unprecedented price concessions during the past year, in addition to beefing up what some call an uncompromising strong-arm tactic not even seen in Bentonville: an online reverse auction buying system considered by some suppliers as a margin-busting, no-win option for them.
The auctions, they said, tip the scale in favor of private-label manufacturers ahead of branded manufacturers by forcing suppliers to blindly bid on price alone. Additionally, the retailer's so-dubbed category captains within its buying division today not only want data on product and shipments, but also are making endless data requests suppliers fear will be used against their own brand when the chain launches its next premium-priced house brand.
About a dozen suppliers or brokers contacted by Advertising Age spoke about their frustrations, but not on the record, fearful of harming business relationships with Target.
"Target was once easier to work with than Wal-Mart. They were more into developing a business plan. You did it with them. Wal-Mart was more into dictating what they wanted," said a VP-sales for a major consumer products company. "That's changing now and Wal-Mart is more approachable than Target."
Target's cheap-chic strategy, despite delivering a regular drubbing in the same-store sales race to a rival six times its size, isn't an unbeatable one, analysts said. Especially considering what a fast study Wal-Mart is.
Indeed, more and more voices are positing the idea that it's only a matter of time before the once-dowdy retailer beats Target at its own game. And if that happens, Target will be left to battle in an area the retailer remains ill-equipped to fight-price. That's where the supplier frustration comes in.
"Wal-Mart runs under the attitude 'Let's take costs out of the system.' Target's attitude is 'Make the supplier bear the brunt of inefficiencies,"' said the head of sales for a major food company. "That makes it much harder to do business at Target today."
And although Wal-Mart talks tough and remains a demanding customer, it also helps you get there, suppliers said, because of its famed logistics system. The VP-sales explained the difference this way: When he plans and orders shipment to Wal-Mart, he can combine four different brands on one truckload, even if the order has been made by four separate Wal-Mart buyers. Not so at Target.
"Their systems don't allow it," said the supplier, who has participated in many of Target's online auctions. "At Target, the volume isn't there but their pricing expectations are. I think Target has decided to match Wal-Mart's pricing, and an online bid system is a great way to do that because it drives down costs."
Target declined to participate for this story, but did respond to questions regarding online auctions and sourcing. In a statement, it said there was an adjustment period for some vendors, but Target emphasized "it has received positive feedback from many of our suppliers."
Additionally, Target said the system allows it to award business based upon performance rather than "relationship or history," noting "it places vendors on equal footing so that the vendors who deserve the business get the business."
Some brands are simply saying no to the auctions. One national sales manager for a premium food brand that also manufactures private-label products did just that. The sales manager said Target lacks the concentration in food sales to ask hefty price concessions gained via online auctions. "Why go through the pain and aggravation when they are still essentially a start-up in food when they are going to bid it out to the low-cost supplier in the next two years?"
Clearly, Target has a long way to go to catch up with Wal-Mart's famed distribution system in food.
Among suppliers, Target's shifting attitude is being most acutely felt by smaller brands. Indeed, despite Target's brand image as a hotbed of innovation, the welcome mat is friendlier at the nondescript offices down in Bentonville than at the retailer's posh Minneapolis headquarters.
"The problem is the barriers," said one frustrated supplier. "If you had found the cure for cancer and wanted to sell it over-the-counter, it would take you five years to get it on the shelf at Target."
A broker who serves dozens of manufacturers as a middleman between suppliers and buyers at Target criticized the chain for not pioneering more new products. "They are only taking the leading brands and selling those. If something does make it big, they'll bring it in."
Even so, that doesn't mean all brands view Target's evolving ways as necessarily unworkable-especially if you've done the work to build a must-have brand.
"Reverse auction is just a tool," argued a chief marketing officer for a well-known consumer brand, even though Target has launched a copycat house brand in his category. "Those kind of auctions aren't taking place on the must-have, traffic-building brands. My experience is it's in categories where the retailer could carry whomever they want, and if they can do that, then how important was your brand? The only place that is safe is if you have a brand that is powerful enough that consumers will be disappointed enough if a retailer doesn't have it."
The challenge at Target, though, is a unique one because the retailer is "a better marketer than most retailers and has a proven ability to make good house brands ... they speak to a higher, more attractive demographic. If they come out with great-looking stuff, customers are loyal to shopping in their stores, not to shopping for certain brands. If you are a premium brand, why would you not be scared by that?"
And that's the dilemma. "Maybe it's the question of being the lobster in the boiling pot," the marketer added.