"From a high level, both Kroger and Target have deficiencies that make competing in this new world harder," pontificates Wolfe Research analyst Scott Mushkin. That new world is dominated by Action Alerts Plus holding Amazon (AMZN - Get Report) getting into every retail business known to man and driving down prices. In turn, big box retailers such as Target and rival Walmart (WMT - Get Report) are being forced to consider scaling up, either online or via stores, to bring down costs and reach more shoppers.
Says Muskin "Target needs a credible food offering to drive more frequent visits to the stores and distribution expertise in consumables, where our research shows more notable out-of-stocks." As for Kroger, it could badly use access to Target's well-known apparel and home brands to help offer consumers a more complete shopping experience. If Kroger can pull that off under Target's watch, that means market share gains from the likes of Macy's (M - Get Report) and Kohl's (KSS - Get Report) that offer apparel and home goods but have no groceries.
Looking at where Target and Kroger stores are located in the U.S., a combination of the two retailers would create great synergies in transportation and other costs. Those synergies could then be reinvested in lower prices for shoppers and for new online initiatives.
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