DVDs and e-books that sell for under $10 is one thing. Appliances that sell for $3 is another. Target (NYSE:TGT) is offering toasters, coffee makers, and slow roasters at $3 each, according to data from GotADeal.com. It is a sign that discounting to pull in retail customers is getting out of hand.
A number of retail industry analysts have questioned whether Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Target (NYSE:TGT) can make money on their DVD promotions. It is just as likely that they choose to lose money on these items to draw people into stores or to their online sites.. They hope that those customers will buy more expensive products that have reasonable profit margins. It is a risk, but given the revenues of the three companies, not a big one.
Target cannot be making money on $3 appliances. It has to be losing money on each one sold. Smart consumers will come to Target stores and buy one of these products and then leave. They may as well shop of low-priced products at another store in the same mall.
Target is also offering discounts of up to 50% on a number of other items. That increases the risks that the Thanksgiving weekend may be a huge revenue-producing period, and a large lose-producing one as well.
Douglas A. McIntyre
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