Kroger, Macy's May Squeeze Target with dunnhumby Relationship

Last Updated Sep 1, 2009 7:53 PM EDT

A move by dunnhumbyUSA to open New York offices as it expands business with Macy's could have a significant impact not only on the department store chain but on Target, as well.

The strategic marketing company, which specializes in gleaning information from loyalty card operations, could put the squeeze on Target, pressing an upper clamp labeled Macy's and a lower designated Kroger.

Word about the New York offices came as dunnhumbyUSA announced that it had an expanded a contractual partnership with Macy's. It will continue to analyze Macy's shopper sales data, develop customer segmentation models and work with the Macy's organization to apply the information developed.

Kroger is the majority investor in dunnhumbyUSA, which was set up with the London-based parent dunnhumby, itself majority owned by Tesco. On this side of the pond, dunnhumbyUSA clients include Coca-Cola, General Mills, Kimberly-Clark, PepsiCo and Procter & Gamble, in addition to Macy's and another retailer, Home Depot. Tesco is conspicuous by its absence, but that's a story for another day.

As it expands food operations, Target can't help but come into increasing competition with Kroger, the largest U.S. supermarket chain and one that has positioned itself to serve the same kind of middle-class customers that Target seeks. On top of that, both Target and Kroger have designed their consumer propositions such that they avoid competing with Wal-Mart on that company's strengths. Kroger carries a more varied and upscale selection of beverages than Wal-Mart, for example, with some emphasis placed on premium wine. Target does very much the same thing, even employing a corporate sommelier at one point.

Kroger and Target both are heavily emphasizing private label products developed to enhance their competitive stance by combining good quality with low price. On top of all that, Kroger has been establishing general merchandise and gourmet-oriented store formats, dubbed marketplace and fresh fare, that will make it even more competitive with Target on higher margin food and non-food businesses.

On the Macy's end, a consideration of designer Anna Sui provides an example of the relative competitive circumstances that have evolved between Target and the department store chain.

Target is preparing a second limited run collection of handbags from the designer. While it's not unusual for Target to coax upscale designers to make brief appearances is in its stores, Sui has long been associated with Macy's. The department store chain has honored her with in-store events and special retrospectives of her work. Now, that's an example of a discounter overlapping on fashion with a department store and not one that favors Macy's, not these days.

Discounters including Target have built their success in no small measure by improving product and presentation enough to coax consumers into purchasing more products at their own stores rather than department stores. More visible in home furnishings than elsewhere -- with Target carrying brands such as Martex and Fieldcrest that once were department store labels -- the battle over customers whose shopping habits extend to both discount and department stores looks to become fiercer as their proposition to the consumer becomes less distinct. Even as Target has pilfered what it might once have considered its brands, Macy's has adopted discount store tactics to enhance its portfolio of exclusive apparel collections, launching celebrity labels and even snatching Martha Stewart away from Sears Holding's Kmart division.

The involvement of dunnhumby and Macy's only will make the department store chain more competitively formidable at the same time that Target is coming into conflict with a muscular rival in the Kroger case, one also pumped up on dunnhumby infusions. It's hard to imagine Target not being a special consideration for the dunnhumby-linked market intelligence operations that even now may be thinking about how to double-team their rival.