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.
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