A Target store in New York, United States, on Monday, March 4, 2024.Â
Shelby Knowles | Bloomberg | Getty Images
Goal It said on Tuesday it would launch a paid membership program next month, mimicking the playbook of its competitors Amazon And Walmart.
The subscription-based program, Target Circle 360, will launch in early April and will cost $99 per year. Target will offer a discounted rate of $49 per year as part of the promotion from its launch through May 18, and then continue to offer the lower rate to its credit card holders after that. The program will include unlimited free same-day delivery on orders over $35 in under one hour with no delivery fees and free two-day shipping, among other perks.
Target is turning to a new revenue stream as it tries to boost weaker sales. Its fiscal fourth-quarter earnings and revenue reported Tuesday beat Wall Street expectations, but its comparable sales fell three quarters in a row. Target shares jumped 12% on Tuesday as the retailer showed progress in improving earnings and unveiled a subscription offering.
With this move, the company is also following in the footsteps of retailers who have turned membership fees into a money-making and sales driver. It's not clear how many people can subscribe to the paid tier. The free Target Circle has more than 100 million members, according to the company.
In an interview with CNBC, CEO Brian Cornell said the paid membership program will encourage customers to place more orders online with Target. He said the company's market research showed that customers value home delivery, even when they frequently use curbside pickup.
“There is a guest who is looking for the ease and convenience of having something brought directly to their home — in some cases, within an hour — and we just want to raise awareness that we can do that,” he said.
The home delivery service will be operated by Shipt, a membership-based company that Target acquired in 2017 for $550 million. Similar to other gig economy companies like DoorDash, the company relies on independent contractors who pick up purchases and deliver them to customers' doors.
By eliminating delivery fees, Target can use the membership program to accelerate its e-commerce business. Digital sales declined every quarter over the past year, and were down 0.7% year over year in the fiscal fourth quarter.
Besides launching a paid membership program, Target is taking other steps to keep shoppers coming back. It is relaunching its free loyalty program and Target Circle credit card, Sylvester said. Target Circle, which debuted in 2019, will become easier to use and more personalized. For example, discounts will be automatically applied to members who belong to the free program instead of having to browse deals on the app.
Target's Circle card gets an extra 5% off customer purchases, includes free two-day shipping and allows extra time to make returns. The card was formerly known as Target RedCard.
Sylvester said the company is looking at a wide range of potential benefits to improve the membership offering and increase subscriber numbers.
Target is turning to its competitors' playbook for a reason: Memberships have boosted the business of retailers like Amazon.
Amazon launched its Prime program in 2005, with perks like free two-day delivery and streaming of popular movies and original TV shows. It costs $139 per year or $14.99 per month, with a video-only membership option of $8.99 per month.
Amazon doesn't often share Prime membership totals. The company had more than 200 million Prime members worldwide in early 2021, according to a recent letter to shareholders written by former CEO Jeff Bezos.
Walmart launched its program called Walmart+ in 2020. It costs $98 per year or $12.95 per month, with perks like free shipping, free grocery delivery for orders of at least $35, and gas discounts.
Walmart didn't say how many people signed up for Walmart+, but its CFO, John David Rennie, said on the company's February earnings call that its membership continues to grow by double-digit percentages.
Walmart CEO Doug McMillon told investors on the company's February earnings call that Walmart+ members spend nearly twice as much as non-members and buy more throughout the year.
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