Target, AOL Team Up

SAN FRANCISCO (06/14/2000) - Target Stores has made its biggest push onto the Internet, announcing on Tuesday a multiyear, multimillion-dollar marketing alliance with America Online Inc.

With sales at $33 billion, the Minneapolis-based retailer is the fourth largest in the U.S., behind Wal-Mart, Sears and Kmart. The other three have spent the past year trying a variety of Net strategies to increase their online sales.

Wal-Mart and Kmart have been the most aggressive, spinning off a portion of their operations into Net divisions based in the Silicon Valley.

Target, by contrast, has until now deliberately opted to keep its online business in-house. As a result, many industry observers questioned whether Target had any cohesive Net strategy. Jerry Storch, Target's president of financial services and new businesses, bristles at this characterization.

"We've been very aggressive," he says. "As a company, we tend to save announcements for when it's really important, as opposed to other e-tailers who issue press releases for a new software release or something."

The Target-AOL deal is the first major stride that the company has made toward being a competitive force on the Net. The alliance will be completed by September. The length of the deal and the exact financial terms were not disclosed. It's an alliance that is similar to a pact AOL struck with Wal-Mart in December. In that deal, AOL agreed to promote Wal-Mart and develop a discount, cobranded ISP modeled along the line of AOL's CompuServe service.

For Target, AOL will customize a cobranded ISP reflecting Target's relatively more upscale shopping audience that runs for $21.95 per month, equal to AOL's flagship service. In March, AOL struck a deal with Sears that also called for a cobranded ISP. Target also will be promoted across a variety of AOL's properties including AOL.com, Netscape Netcenter, AOL Digital City and ShopAtAOL. In stores, Target will feature AOL prominently, ranging from promotional plugs on shopping bags to an area within stores, replete with an interactive kiosk, dedicated to teaching customers about the service.

AOL also will be featured in Target's "Pop Art" ad campaign. Without revealing the full details of the ad plans, Storch said: "We have a whole plan for advertising and marketing the AOL alliance, and you can be sure it will be heavily visible in our stores and in our marketing vehicles." Next month, Target's Lullaby Club, a gift registry for expecting parents, will go online, joining Club Wedd, its wedding registry.

By Halloween, the company intends to increase the product selection on Target.com by 700 percent. And next year, gift registries at its other stores - Midwest department stores Dayton's, Hudson's and Marshall Field's - will all boast online registries. But Target's biggest innovation will come next year, several months after the AOL alliance starts.

The company will link customer-shopping data from its stores with its Web site.

When complete, those shoppers who, for instance, buy lots of diapers in the stores will be greeted with infant products when they enter Target.com or a cobranded ISP now being developed in tandem with AOL. The Target guest card, the store's credit card, which has nearly 16 million users, will be the key to this system. Shoppers will be able to use their Target card to subscribe to the Target-AOL branded ISP, as well as purchase anything in Target stores - both on and offline.

By combining the data into one central database, the company can more precisely match customers with products they've purchased in the past. "We have a billion visitors to our stores every year, and we are beginning to keep that data," Storch says. "We know who buys diapers. We know who buys toys. And we know who buys Depends. Look how valuable that is for marketing." Storch was quick to say this information will be kept securely in-house and that it would not be shared with any other retailers or companies.

According to Storch, the company has big plans for the Net in general. It recently joined a business-to-business marketplace, dubbed the Worldwide Retail Exchange, that links suppliers and retailers in an effort to defray costs on everything from office supplies to product stocked in stores. Within five years, every segment of Target's business will be conducted, at least in part, on the Net, Storch says. "That's why the notion of spinning off our Net business didn't make any sense," he says. "It would have been like spinning off our PCs or spinning off our truck fleet."

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