For some people, going to Target to buy a loaf of bread and returning with $300 worth of clothes and home decor is a familiar scenario. The addiction to Target is real and might become more intense for some. Bloomberg reports that the company is considering offering a paid membership program as early as this year. Should they launch it, this program would be another competitor for Amazon Prime, Walmart Plus, and Costco memberships. However, Target is late to the party, many years after its competitors. Would proceeding with the project make sense for the company, or would it be doomed to fail? Ultimately, should e-commerce entrepreneurs keep an eye on this program?
Let’s first examine the existing offerings. The main perks of Amazon and Walmart+ are free shipping, with one-day or faster shipping by Amazon being one of the main reasons for its success. A Costco membership provides access to their stores. In addition, companies offer additional benefits such as flat tire repairs or access to streaming services. Regarding pricing, memberships range from $5 a month for Costco to about $12 per month for Amazon Prime. Millions of consumers subscribe to these services. Although numbers vary by source, Amazon Prime leads with over 160 million members in the US.
| Feature | Amazon Prime | Walmart+ | CostCo Gold Star |
|---|---|---|---|
| Price | $139 per year | $98 per year | $60 per year |
| Delivery | Free One-Day and Same-Day Shipping | Free shippingFree delivery from store($35 min) | N/A |
| Other benefits | Prime Video, Reading, Gaming and Amazon Music access | Fuel discountsParamount+Free flat tire repairFree road hazard warranty | Warehouse accessCostco Fuel accessFree household cardAccess to Costco services |
| Members | 29 Million | 160 Million | 129 Million |
What would a Target membership look like? There is no information available at this time, but we can imagine a program similar to Walmart+, with the company leveraging its network of retail stores and adding on their free membership program benefits, Circle
The main benefit for Target would be recurring revenues. Memberships provide a consistent, predictable revenue stream. Fees from memberships contribute to the company’s earnings, supporting operations and potentially reducing reliance on sales margins. Membership programs encourage customer loyalty by offering exclusive benefits, discounts, or services. Members are more likely to continue shopping with the company to maximize the value of their membership, increasing customer retention. Customers paying an upfront fee are incentivized to make more purchases or use more services to justify their investment, which can lead to higher average spending per member compared to non-member customers. There are also several other benefits, such as data collection, community building, and upselling opportunities.
On the other hand, building such a program could be costly for Target. Implementing and maintaining a membership program involves significant operational expenses, including technology infrastructure for tracking and managing memberships, customer service support dedicated to members, and the logistics of fulfilling membership benefits such as free shipping or exclusive deals. Attracting new members and retaining existing ones requires continuous marketing efforts. The costs can include advertising, promotional offers (like discounts or free trials), and the development of new services or benefits to keep the membership attractive. There is the risk that not enough customers enroll in this paid program, and that Target could not offset the fixed costs involved.
With this information in mind, it is clear that Target could benefit from having such a program, if it were successful. The market is competitive, with competitors offering very attractive deals. It’s true that people can subscribe to several services at once (many households subscribe to Netflix, Disney+, Hulu, and a million other streaming services). However, in the case of retail stores, would it make sense to have two memberships that offer very similar benefits and products? Target would need to give customers a compelling reason to subscribe and come up with a very strong value proposition. Let’s not forget that Target and Walmart have different customer bases with different needs, which gives the program potential for differentiation. In conclusion, while there are compelling reasons for Target to consider launching a paid membership program, this decision should be approached with a clear understanding of the potential challenges and costs involved.
But what about us, e-commerce entrepreneurs? Target launched its marketplace, Target+, in 2019. Unfortunately, the invite-only marketplace remains rather small. In 2023, it only had 650 sellers. This is a deliberate choice by Target’s management, who wants to offer a more curated experience than Amazon. While Target is the 5th largest retail e-commerce company, industry sources report that most of their sales came from store-powered fulfillment, with the marketplace likely having a negligible contribution to Target’s total e-commerce sales. Due to the size and strategy of their marketplace, I believe the potential paid membership program should not become a priority for brands, but entrepreneurs should keep this information in mind. Who knows, it could be a signal that Target is about to change their plans regarding their e-commerce strategy.
https://investor.costco.com/company-profile/default.aspx
https://www.insiderintelligence.com/content/walmart-memberships-will-grow-10-4-this-year
https://backlinko.com/amazon-prime-users
https://www.marketplacepulse.com/articles/targets-curated-marketplace-turns-four
