Posted on 06/17/2005 9:17:36 AM PDT by Tumbleweed_Connection
Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research), which has gained a reputation for leaving opponents limping into bankruptcy court, is taking on Target Corp. (TGT.N: Quote, Profile, Research) in a fight that it just might lose.
Wal-Mart, the No. 1 retailer, is widening its array of stylish-but-cheap goods in hopes of winning over middle-income customers, putting it head-to-head with a rival that has proved it can compete and thrive against a company six times its size.
"Can Wal-Mart make merchandise improvements that will drive incremental sales? Absolutely," said Darrell Rigby, head of the global retail practice at consultants Bain & Co. "Can Wal-Mart beat Target at Target's game? I doubt it."
Target's secret is to match Wal-Mart's prices on commodity items such as food and cleaning supplies, and then use sales of trendy-but-affordable designer merchandise to boost profits.
The strategy seems to be working. For the first quarter ended on April 30, Target turned in a strong 6.2 percent sales gain at stores open at least a year. That was more than double the same-store sales increase for Wal-Mart in the United States.
Wall Street has noticed the discrepancy, rewarding Target's shares with a higher valuation than Wal-Mart's. Target trades at nearly 21 times earnings forecasts for the next fiscal year, compared with a multiple of about 18 for Wal-Mart, according to Reuters Estimates.
The sales gap isn't lost on Wal-Mart executives. Mike Duke, head of the company's U.S. discount stores, said visits to Target stores are the No. 3 use of his time, behind meeting with Wal-Mart employees and customers.
"I'll be straight up -- they are a great competitor," Duke said in a presentation to analysts this month.
WAL-MART CHEAP CHIC?
Now Wal-Mart wants to bring in its own "cheap chic" goods, using the British design team behind its George apparel line to come up with more fashionable offerings.
A Target spokeswoman said the retailer is confident of its strategy and declined to comment on Wal-Mart's plans...
The rest of the article:
Some analysts worry that Wal-Mart will stray too far from its low-price roots and alienate its core low-income shoppers.
Emme Kozloff, retail analyst with Sanford Bernstein, said fashion is fickle, and Wal-Mart could be stuck slashing prices if its "contemporary" clothing fails to win new customers.
"It's a hit-and-miss business, with no company ever able to always get it right," she said, noting Wal-Mart's scant fashion experience.
The retailer has been relying on staples like groceries to drive sales as rising energy prices cut into discretionary spending, particularly among low-income shoppers.
But food is a notoriously low-margin business, and Wal-Mart's profits have suffered. First-quarter earnings missed the company's -- and Wall Street's -- expectations.
Wal-Mart was unusually frank in taking the blame for its disappointing results.
Instead of pointing a finger at high energy prices or bad weather, the company said it put too much emphasis on its lowest-priced items, which it calls "opening price points," and lost some customers who were willing to pay more for style.
"When it comes to buying domestics or apparel, that customer isn't shopping with us," Chief Executive Lee Scott said. "They are going somewhere else where they believe the offering is more suited to their taste."
'JUNKY' STORES
Scott said Wal-Mart prominently displayed impulse items priced at less than $1 in hopes that cash-strapped customers might be tempted to pick up one or two. The idea was that with more than 100 million shoppers visiting stores each week, sales would grow one dollar at a time.
"But what happened is that the further we went that way, the less relevant we got to be to the customer who was not really being impacted by these negative economic issues," Scott said, adding that stores began to look "junky" because of all the displays of low-priced goods.
This isn't the first time Wal-Mart has taken on a strong rival. Two years ago, its Sam's Club warehouse division was losing ground to Costco Wholesale Corp., and executives set out an aggressive plan to undercut the competitor's prices and go after coveted small-business customers.
While Costco eventually recovered and remained the No. 1 player in the U.S. warehouse club sector, Sam's Club sales grew too, suggesting that when the two giants wrestled, consumers welcomed the lower prices and both sides gained ground.
Wal-Mart is hoping that will happen again.
Scott says consumers fall into three categories -- loyal Wal-Mart customers, those who shop there for food but not general merchandise, and those who don't shop there at all.
"Quite honestly, I believe that Wal-Mart has the opportunity to have all three of those customers," he said.
Winning over fashion-conscious shoppers will be hard. Target has a 10-year head start and has built strong relationships with well-known designers, including Michael Graves and Isaac Mizrahi.
Still, Bain's Rigby said Target knows better than to bet against Wal-Mart.
"I'm sure everyone at Target is taking this new threat very seriously," he said.
Target is way much better than Walmart.
Actually Walmart s*cks.
But I am not a member of the anti-Walmart jihad.
Wal Mart won't win this one.... I don't shop at Target thanks to their caving to the pillow biters on the Salvation Army, and their decision to sell sexually suggestive clothing to children.... However Wal Mart is not going to convince the middle income folks to go be cattle at their horribly overcrowded and understaffed stores.
Typical Saturday in my town you go to Wal Mart, you are going to wait in line at the check out for 30-45 minutes!!!
Middle Income and higher folks are not going to give up an hour of their day waiting in line to save .10 on a Gravy Dish they can buy at Target and be in and out in 5 minutes.
Sorry, once you hit a level where you realize your personal time is worth more than a few bucks at the checkout, you will not shop at Walmart, no matter how much they try to "upscale".
Well, I wouldn't go THAT far, but Target has entered a rather nice market niche of relatively inexpensive but still attractive products. Walmart supercenters often have some good deals on groceries and commodity items.
I might actually buy clothes from Target. From Wal-Mart? Fuggeddaboudit. Electronics? Target has had some sweet deals lately, too.
Target has wider aisles and their merchandise is displayed far better than Walmart. And best of all, Target doesn't have that Walmart popcorn/hot dog/cotton candy odor that permeates every square inch of it's stores.
"And best of all, Target doesn't have that Walmart popcorn/hot dog/cotton candy odor that permeates every square inch of it's stores."
And that's just the associates!
Both stores are hurt by the made-in-China junk, including clothing. One wash and the slacks shrink up to fit Urkel, buttons fall off, etc. The cheap plastic items fall apart in your hands. And Target seems to be going through some sort of supply problem - half the time lately the shelves are empty of whatever basic thing you went there to buy. The local "99 cent" store is always packed. Go figure.
Never say never! Not too long ago I needed to buy some jeans at around 4am and the options were limited.. (24 hr Super Wal-Mart)
You read my mind. Your posts give the reasons why I prefer to shop at Target even if some of the prices are higher.
Target seems to be a bit more classier than Walmart, in terms as the impression of merchandise and the impression I get from the store environment, also the impression I get of the other people walking in the store. I noticed the Target here on Long Island, is adding a Starbucks Coffee, that alone is a bit more classier than hotdogs, horrible pizza and the impression of the people I see who work in snack bars.
"And best of all, Target doesn't have that Walmart popcorn/hot dog/cotton candy odor that permeates every square inch of it's stores."
Unfortunately, OUR Target has that odor. It has one of those little shops right next to the shopping carts. But I think Target has a bright cheerful look about it, whereas Wal-Mart Supercenter is crowded yet huge at the same time.
You want a scary slice of American life. Go to a Walmart in the South at about 2am. I live in Florida but my Aunt who is in Missouri says the same thing. The people you see give a new meaning to the term " shallow gene pool" And this is from someone who loves the South.
Since Target refused to let the Salvation Army set up in front of their stores last Christmas, I haven't been back and don't plan on it. I'll stick with Wal-Mart. They are very supportive of local groups including high schools here in my community. I appreciate that.
The problem is that walmart stores are not neat and tidy when compared to target stores. Target has got the cleaner stores because their stores are smaller.
If walmart wants to do the "chic" thing, they have to end the "slob" thing.
Target deserves some credit here too. They've managed to transform their low-end retail into a "downscale chic" experience. There is some superb marketing going on here.
WalMart has its own kind of "cool" too, even though so many now bash it. But it ain't Target's kinda cool, and I doubt even WalMart can bridge the gap. Dance with the lady that brung ya, I say.
My Super Wal-Mart is usually very well staffed with often no waiting time in line. Maybe yours just had a bad manager.
You want a scary slice of American life. Go to a Walmart in the South at about 2am. I live in Florida but my Aunt who is in Missouri says the same thing. The people you see give a new meaning to the term " shallow gene pool" And this is from someone who loves the South.
I buy all my shoes at Target, though. The styles at Wal-mart are horrible, and they aren't any cheaper. I'm wearing a pear of really nice all-leather boat shoes from Target as we post, and they've held up well with daily wearing for six months. I have to buy two pairs at once to match up my feet, too, and they still only cost about 45 bucks for both pairs together.
Got news for you, Wal-Mart looked junky WAY before that, because they have too much crap in the store PERIOD. Shopping at Wal-Mart had to be one of the most frustrating exercises I've ever put myself through - yet the place was full of people with overflowing shopping carts. I guess I just don't have the patience to wander all over a 25,000+ square foot store looking for something or someone to tell me where I can find it! Wal-Mart is a definite last resort in my shopping hierarchy.
Wow, I think you just offended a lot of people. I love shopping at Wal-Mart but I won't take it personally. I find most Wal-Mart shoppers to be average, hard-working Americans. I like people like that.
I can vouch for both. Let's just say that the freaks really do come out at night. In some cases, I'm convinced that it has something to do with not being seen in daylight.
D.O.
WalMart probably doesn't worry Target long-term nearly as much as the growing US presence of the ultimate in semi-downscale chic:
Ikea.
Conclusion: more variety, more savings, more consumer satisfaction, and more disposable income to spend elsewhere. No matter how you slice it, the consumer wins!
Knowing that they are out to get target...I'm going to start shopping their more often.
Target has sushi. WalMart has McDonald's. I'd rather go to Target.
Also, I cannot ever find a thing in that store. Example: trying to find a Rubbermaid wastebasket for my bathroom. In every other store I have been in, all of the Rubbermaid stuff is together. Not at Wal-Mart! Rubbermaid wastebaskets are in the wastebasket area, while plastic containers are in the kitchen area, and dishdrainers located by dishes!! So when there is a Rubbermaid sale, you have to walk all over the store to find things.
I don't think I have been to the Wal-Mart in four years.
Knowing that they are out to get target...I'm going to start shopping their more often....shopping at Target that is.....not wallyworld. If Wallyworld has no competetion...they'll take over the world!
(I'm headed there tomorrow.....)
Ikea!! A masterpiece of marketing! I took my daughter to the one north of Chicago a few months ago. Unbelievable prices and great display. I wish there were one closer to me.
Your point is well made, but coudn't the reverse also hold true. If WM..because of the food and the good prices on staples, becomes a must-vist weekly or more often destination...and then those same shoppers realize that they can also get good values on other stuff..well..are you really going to drive from the WM to the Target, so you can feel "good" about buying the same piece of merchandise at the same price...?
This Target customer hasn't stepped foot in a Wal-Mart in five years and doesn't plan on doing so in the future. Poor service, shoddy merchandise and the fact that the nearest Wal-Mart is 30 minutes away in a bad neighborhood mean that Wally World will not have my business for the forseeable future.
Target's Chinese suppliers are under state orders to slow down deliveries to Target. Wal-Mart is the retailer of choice for the Chinese since it is building a large presence in Communist China. In fact Wal-Mart is reported to have requested that China harm Target by slowing deliveries so that Wal-Mart can gain from Target's loss.
This is all fantasy but could it happen? If an MSM reporter were feed such a line I am sure we would be seeing it on television, unnamed sources of course.
But, are they really hurt? The Magic Eight Ball, probably made in China, says, "My sources say no."
I don't think WalMart can actually compete head to head with Target, notwithout a major overhaul to just about everything. It's not just the slightly higher quality of goods that sets Target apart, they also put in less merchandise per square foot, which means fewer shelves causing there to be more room for people, so the place is innately less cramped than Wally and has a more relaxing shopping experience. That's really what makes me more of a Target shopper than a Wally shopper, it's just a much less annoying place to go.
I saw a show on one of the geek channels about the rise of Ikea. I was really impressed by their business sense, but not impressed by their stuff, it mostly looked like the hyper-modern incredibly uncomfortable stuff that was popular in the 70s, I hated that style the first time around. But if they ever switched to merch that I found aesthetically appealing I would definitely shop there, the stores looked really pleasant.
WalMart is closer to my house than Target and the groceries are much cheaper than the grocery store across the street from WalMart. I shop there alot but not to buy 'upscale' merchandise. It is chaotic but if you know what you want and can get in and get out it is worth it to me to put up with the mess. Recently I purchased Fruit of the Loom tagless t shirts for under four bucks a piece. They were in good summer colors and wash up great. I never go there after dark though because the clientele gets a little scary.
Huh. And I thought it was the sloppy displays, crowded aisles, dirty floors and crappy merchandise.
plus the service at wal-mart sucks big time!
Yes. Looks great but it can be cheap in more ways than price. They even use cardboad in some of their funiture to keep cost and weight down. Seriously. They had a show on one of the educational channels about them and they use cardboard components sandwiched between thin of layers of wood. If it works for you, buy all means buy it and use it. But personally I'm not impressed with the Ikea furniture that I've seen.
Mark my word: Within the next three to five years Walmart's business plan will start to wobble and it will need to close non-performing stores to keep Wallstreet happy. As result, more than a few communities will be stuck with big ugly empty boxes of little value to anyone other than Walmart. The real funny part is that the people who left their $7.00 an hour jobs at the "Mom & Pop Stores" to work at Wallyworld for $7.05 an hour will have no place to work because the Mom & Pop Stores went out of business shortly after Walmart came to town.
No. You simply will not make a purchase at that time. Then when it is time to go looking for fashion items, you will go to that nice Target store instead.
When I am in WalMart, my mission is to get what I need and get the He!! out. I am not going to stop and shop for something I don't need today!
They need to put a Jelly Belly aisle in their Super Stores.
In the NE part of the cou ntry..we have no Wal-Marts..so I rarely ever have been in one..thoguht when both dauighters werew in college in PA..I loved the store..they had everything in one place..A huge TARGET just opened nearby...I really like it...big wide aisles..
Much as I find the Wally shopping experience unpleasant I still go occasionally, can't beat the deals on a lot of stuff. Generally I develop a list of "Wally stuff" I want or need, when the list gets deep into double digits I go to Wally at some off hour to avoid as much crowd as possible and go through as fast as I can. Even with the relatively thin crowds I encounter the place is still a nightmare to navigate because the aisles are so tight, I think the main aisles are the only ones where two shopping carts can exist side by side without collision.
But for general needs I'm a Target guy, it's gotten interesting lately as it almost seems my house is the center of Target's target area in Tucson, when the wife and I decide to go to Target the next question is which one, we've got three nearly equidistant from home, and another further away but on a frequent travel path. There's a Wally on that travel path, but we don't go there nearly as often as Target.
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