Why a Target/Best Buy merger makes sense

In what shouldn’t be dismissed as a step closer to a potential merger, mass merchant Target has partnered with Best Buy for its consumer electronics expertise. Beginning in October, Best Buy will place Geek Squad agents in 29 Target stores, mainly in the Denver, Colorado area. The on-site tech experts will be on hand for the traditional range of services including pre-purchase advice and instore device repairs to home-theatre delivery and installation. The six-month pilot project should benefit both retailers: Target will be able to leverage Best Buy’s brand and product know-how while Best Buy will be able to reach a broader customer demographic, mainly more women.

Target shoppers will benefit from Best Buy's expert product knowledge and customer service

Target shoppers will benefit from Best Buy's expert product knowledge

Target certainly isn’t new to retail partnerships. They have capitalised on the elasticity of their brand by partnering with upmarket labels such as Missoni and Jason Wu for clothing, as well as retailers including independents as part of their ‘Shops at Target’ initiative and more recently department store chain Neiman Marcus in a deal that will see the retailers jointly sell a holiday collection this winter.

There’s no denying that Target has broad appeal. However, like any mass retailer today, they are up against a new set of competitive forces which is pressuring them to validate every single category, brand and SKU available on shelves in order to ensure they don’t fall victim to the showrooming effect.

Despite Target’s recent push into grocery, hardlines (of which consumer electronics, entertainment and books are major components) still account for 19% of sales. They have strengthened the electronics category in particular over the past 12 months, with new Apple concessions having launched in May. So although it may seem counterintuitive to join forces with rival Best Buy, we have to remember that there is a much bigger common threat in the form of Amazon. Target recently stopped selling Amazon’s Kindle in its stores. The impact on Best Buy has been much greater in the form of store closures and employee layoffs. They won’t beat Amazon on price or assortment, so they must leverage their renowned customer service and look for alternative revenue streams, both of which Target can help do.

A merger would prevent Target from getting too close to Best Buy's shoppers (Apple concession pictured)

A merger would prevent Target from getting too close to Best Buy's shoppers (Apple concession pictured)

So could this latest move in fact be one step closer to a merger? The consumer electronics store as a bricks and mortar concept may not be dead, but it is certainly overrepresented given new competitive threats. Best Buy may have outlived Circuit City but it must restructure in order to prevent suffering a similar fate.

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