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MarketScreener Homepage  >  Equities  >  Nyse  >  Target Corporation    TGT

TARGET CORPORATION (TGT)
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Consumer giants spurn risks to chase online subscribers

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01/17/2019 | 07:22pm EST
FILE PHOTO: The logo for Procter & Gamble Co. is displayed on a screen on the floor of the NYSE in New York

LONDON (Reuters) - Major consumer companies including Unilever, Procter & Gamble and Nestle are chasing consumers who want food and household goods delivered automatically, even though this kind of business has not always worked.

The companies are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.

The world's biggest packaged food company, Nestle, whose Nespresso coffee is already a sizeable subscription business, recently launched a subscription programme for nutritional drinks in Japan and expanded ReadyRefresh, an online bottled water service, in the United States.

It also wants to expand the Tails.com subscription pet food from Britain to continental Europe, one of its executives told Reuters. It is testing the service in France for a possible launch this year.

Unilever on Monday will launch its Skinsei brand in the United States after testing, offering "personalised" skincare by subscription. Unilever expanded its Dollar Shave Club subscription razor service to include cologne and beard oil in 2018 and toothpaste in 2017.

Meanwhile, Procter & Gamble, the world's largest home and personal care company, expanded its Gillette on Demand razor subscription service to Canada. Subscribers can text when they are ready for their next shipment.

Selling directly lets manufacturers skirt retailers, giving them more profit and control over pricing, promotions and merchandising. This helps when retailers such as Amazon and Sainsbury's are pressing consumer product companies for discounts and pouring resources into own-label products.

Subscription selling gives them guaranteed revenues, a better picture of customers and can make goods cheaper to deliver.

"They're getting it to you on a specific date, but they don't have to get it to you in one or two days," said retail analyst Scott Mushkin at Wolfe Research. "It's a way for them to manage down their logistics and distribution costs." Amazon has offered discounts since 2006 with its Subscribe and Save programme, which gives people up to 15 percent off when they sign up for repeat deliveries of household items.

It is now "a multi-billion dollar business inside Amazon", said Tom Furphy, CEO of venture capital firm Consumer Equity Partners and former vice president of Amazon's consumables unit, which launched the service.

WANING INTEREST

Liz Cadman, founder of mysubscriptionaddiction.com, said children's educational boxes were the U.S. website's hottest category in 2018, followed by grooming, make-up and beauty. Biggest losers were snacks, clothing and pet goods, she said.

The trouble with subscriptions, analysts say, is high cancellation rates as consumers get bored, high marketing costs, costly delivery and the fact that people often end up with goods they don't want. Mondelez International has suspended its Oreo Cookie Club, a programme rolled out last year. For $20 per month, subscribers got a box containing Oreos in different flavours, with recipe cards, candy and merchandise such as Oreo-branded socks, sunglasses or cups.

After three months, Ruby Scarbrough cancelled her subscription, saying in an online review that she could buy the cookies more cheaply at a store.

Jeff Jarrett, global head of e-commerce at Mondelez, pointed to the challenges of delivering mass-market snacks economically and keeping customers interested.

Nobody has "cracked the code" for snack subscriptions, he said, though Mondelez may give its Oreo club another shot, likely with more flavours, better merchandise or a better online experience.

General Mills axed its Nibblr subscription snack business in 2015 after 18 months. A similar project from Kellogg, reportedly planned for that year, never materialized. Walmart shut its Goodies subscription snack business in 2013 after a year.

While subscriptions delight some consumers, they frustrate others because "you end up with too much of the product or too little", Procter & Gamble CFO Jon Moeller told Reuters.

GROWING, BUT HOW MUCH?

Subscriptions represent about 10 percent of all U.S. online sales, and more than 1 percent of all retail sales, said Burt Flickinger, managing director of consumer consulting firm Strategic Resources Group.

He said subscriptions are the hottest part of the industry, growing more than 17 percent a year and outpacing overall online sales, which are growing more than 12 percent. He said subscriptions may exceed 10 percent of the US retail market in five years and 15 percent in 10 years.

Euromonitor International says subscription shaving clubs, including Dollar Shave and Harry's, took about 12 percent of the $2.1 billion U.S. market for men's razors and blades in 2017, up from 6.4 percent two years earlier. But Dollar Shave's sales have slowed dramatically, with Unilever in October citing growth of around 10 percent year-to-date, compared to more than 50 percent in 2016, the year it bought the brand.

Unilever said a slowdown was not unusual but it was "pleased with performance" at Dollar Shave, whose North American business would be close to breakeven this year.

Unilever's global brand vice president of skincare, Valentina Ciobanu, told Reuters the company wants to make its subscriptions more flexible, because consumers demand options when they buy.

"We don't force you to subscribe at the beginning," Ciobanu said about the Skinsei brand, which she created inside the company. Skinsei aimed to keep shoppers loyal in part by making changes to the products it recommends based on the season of the year and other factors, she said.

Ciobanu said Skinsei's products could be combined into more than one million skincare regimens. She declined to give sales projections.

However, she and other executives said it was unclear whether subscription brands would take off or remain niche.

"For now it's still early adopters. The question mark is how long will it take to become more mass, and I think nobody has the answer to that question," said Bernard Meunier, who runs Nestle's Purina Petcare business in Europe, Middle East and North Africa.

(Reporting by Martinne Geller; Additional reporting by Richa Naidu in Chicago; Editing by Giles Elgood)

By Martinne Geller

Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM 0.56% 1693.22 Delayed Quote.12.73%
EDGEWELL PERSONAL CARE CO -1.03% 38.58 Delayed Quote.3.29%
GENERAL MILLS 1.66% 42.97 Delayed Quote.8.55%
J SAINSBURY 1.88% 276.4 Delayed Quote.2.45%
KELLOGG 0.27% 59.28 Delayed Quote.3.98%
MACY'S 1.10% 24.75 Delayed Quote.-16.89%
MONDELEZ INTERNATIONAL 0.87% 43.04 Delayed Quote.7.52%
NESTLÉ 0.29% 84.18 Delayed Quote.5.19%
PROCTER & GAMBLE COMPANY -0.80% 90.64 Delayed Quote.-1.39%
TARGET CORPORATION 2.24% 69.37 Delayed Quote.2.66%
UNILEVER 0.09% 4025 Delayed Quote.-2.11%
UNILEVER (NL) -0.05% 46.51 Delayed Quote.-1.82%
WAL-MART STORES 0.40% 96.74 Delayed Quote.3.85%
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Financials ($)
Sales 2019 75 376 M
EBIT 2019 4 115 M
Net income 2019 2 910 M
Debt 2019 10 128 M
Yield 2019 3,78%
P/E ratio 2019 12,72
P/E ratio 2020 12,38
EV / Sales 2019 0,61x
EV / Sales 2020 0,60x
Capitalization 36 200 M
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Mean consensus HOLD
Number of Analysts 27
Average target price 81,6 $
Spread / Average Target 18%
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Managers
NameTitle
Brian C. Cornell Chairman & Chief Executive Officer
John J. Mulligan Chief Operating Officer & Executive Vice President
Catherine R. Smith Chief Financial Officer & Executive Vice President
Michael E. McNamara Executive VP, Chief Information & Digital Officer
Rich Agostino Chief Information Security Officer & Senior VP
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