Target announced on Tuesday its upcoming launch of a paid membership program next month, taking a page from the playbook of competitors like Amazon and Walmart.
The forthcoming subscription-based service, dubbed Target Circle 360, is set to debut in early April, priced at $99 annually. As part of a promotional offer, Target will initially provide a discounted rate of $49 per year until May 18, thereafter extending the reduced price to its credit card holders.
The membership will encompass perks such as unlimited free same-day delivery for orders exceeding $35, with deliveries as swift as one hour and no delivery charges, along with complimentary two-day shipping and additional benefits.
This move by Target signifies a pivot toward a new revenue stream amidst efforts to bolster sluggish sales. While the company’s fiscal fourth-quarter earnings and revenue, reported on Tuesday, surpassed Wall Street’s expectations, its comparable sales have dwindled for three consecutive quarters.
In emulating retailers who have successfully turned membership fees into both a revenue generator and a sales catalyst, Target aims to capitalize on the potential of its paid tier. Although the exact number of potential subscribers remains uncertain, the free Target Circle boasts over 100 million members, according to the company.
CEO Brian Cornell, speaking with CNBC, emphasized how the paid membership program is poised to incentivize customers to place more online orders with Target. He highlighted the company’s market research, indicating that customers increasingly prioritize home delivery, even as curbside pickup gains traction.
The delivery aspect of the program will be facilitated by Shipt, a membership-based company acquired by Target in 2017 for $550 million. Similar to gig-economy platforms like DoorDash, Shipt relies on independent contractors to fulfill purchases and deliver them to customers’ doorsteps.
By waiving delivery fees, Target aims to fuel growth in its e-commerce segment through the membership program. Digital sales have seen consecutive quarterly declines over the past year, dropping 0.7% year-over-year in the fiscal fourth quarter.
In addition to launching the paid membership initiative, Target is implementing other measures to drive customer engagement. It is relaunching its free Target Circle loyalty program and credit card, with enhancements to improve user experience and personalization. For instance, discounts for Target Circle members will now be applied automatically, streamlining the shopping process.
The Target Circle card offers an additional 5% discount on purchases, free two-day shipping, and extended return windows. Formerly known as the Target RedCard, the revamped card aims to further incentivize customer loyalty.
Target is exploring various potential benefits to enrich the membership offering and bolster subscriber numbers. This strategic shift mirrors tactics employed by competitors like Amazon, where membership programs have proven instrumental in driving business growth. Amazon’s Prime program, launched in 2005, offers perks such as free two-day delivery and access to streaming content for a membership fee of $139 per year or $14.99 per month.
Walmart introduced its membership program, Walmart+, in 2020, priced at $98 per year or $12.95 per month. With benefits including free shipping, grocery deliveries, and gas discounts, Walmart+ has seen continued growth, with members exhibiting higher spending habits compared to nonmembers, as noted by Walmart CEO Doug McMillon during an earnings call in February.
