If Target Goes Down Clouds Win

by: Dana Blankenhorn

Target's new ecommerce site suffered its first big failure this week when a deal for goods from Italian designers Mizzoni crashed the website.

Target (TGT) had left Amazon.com (AMZN) with great fanfare last month, going with a system run by IBM (NYSE:IBM), Oracle (NYSE:ORCL), and others managed by Sapient (SAPE).

But there were indications (slow page loads) even before this debacle that things were not working. What looks like a retail story is actually a tech one. And the tech lesson is that clouds scale where conventional systems fail.

It's all very ironic, because Target seems to have finally found a market “sweet spot,” in limited-run deals with big-name designers. Those designers are tired of having their stuff counterfeited, and rather than relying on police, have finally figured out the best solution is to knock themselves off. Had the company stayed with Amazon, it might have clear sailing right now.

In the case of Mizzoni, the company produced a line of signature goods with signature looks, but Target prices. We're talking $60 dresses from a company whose low-end was formerly $600.

Fashion designers have the same problem Apple had in the mid-1980s. They can get premium prices in a class market, but they can't serve the mass market, which has gone elsewhere due to price. By aligning with Target, designers like Mizzoni do what Apple did with Chinese production this decade – they serve more of the market without losing cachet.

The rapid sell-out of Mizzoni goods both online and in stores is actually good news for Target, and great news for Mizzoni. The last thing a big-name fashion brand wants to see is its name on a true discount rack.

There are going to be more of these kinds of deals. A lot more. The company that can execute against them, maintaining cachet, selling out quickly at full discount retail, is going to have a huge advantage.

By limiting supply but serving the mass market, Target can get retail price and solid profits. But if its Web site can't deliver, designers who like the model might well be tempted to go to Wal-Mart (WMT), whose cloud system has scaled to the point where it's now the third-largest TV stream provider.

The bottom line is there is tremendous opportunity here for Target, but the target is in Sapients' back. If there are further problems with Target's site heading into the Christmas season, short both it and Sapient. But buy Wal-Mart and, on weakness, Amazon as well, because its cloud will have proven the biggest winner in all this.

Big retail ideas don't come around often. Failure to strike when the iron is hot can be fatal.

Disclosure: I am long IBM.

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