Posted on 08/30/2009 6:15:48 PM PDT by 2ndDivisionVet
The economic downturn has made an already competitive retail landscape especially brutal and unforgiving. Exhibit A is the rivalry between discount retailers Wal-Mart (WMT) and Target (TGT).
The clear winner in the current downturn was Wal-Mart. Amid millions of job losses and plunging stock and housing markets, new customers flocked to Wal-Mart, at the expense of almost every other U.S. retailer except ultralow-price dollar stores.
It appears that "cheap chic" -- Target's famous selling point -- is not the primary concern of recession-battered consumers. Last quarter, the average U.S. Wal-Mart store actually saw traffic increase 1.3% from the year before. By contrast, last quarter Target's traffic was down 2.6% from a year ago.
"Even with lower sales than we'd expected," Wal-Mart Chief Executive Officer Mike Duke told analysts Aug. 13, "we believe that our comparable store sales outperformed the retail sector almost every place where we do business."
Wal-Mart's advantage during a recession is its low prices. "Everybody is becoming more price-conscious rather than fashion-conscious," says Thomas Nyheim, a portfolio manager at Christiana Bank & Trust Co., which owns Wal-Mart shares. "Nobody can match Wal-Mart on pricing."
One of Target's problems is its reliance on discretionary purchases, which make up about three-fifths of sales. Target customers "now focus their shopping more on need than entertainment," Target Merchandising Executive Vice-President Kathy Tesija told analysts Aug. 18. That skews purchases toward food and other necessities, and away from clothing and items for the home.
Wal-Mart did feel the impact from slower consumer spending. U.S. same-store sales dropped 1.2% last quarter, according to results released Aug. 13.
And, Target, like Wal-Mart, benefits from consumers trading down from the pricey to the less expensive. "We continue to gain affluent guests from department stores," Tesija said.
However, Target -- despite its status as a discounter -- did far worse than Wal-Mart in its sales. It saw same-store sales tumble 6.2% in a year.
Both firms win kudos from analysts and investors for managing inventories and costs at a tough time. Earnings figures for both beat Wall Street expectations.
But if the main fight between Wal-Mart and Target is over customers and sales figures, Wal-Mart clearly won out in the past year.
In all, total sales at Wal-Mart rose 2.7% last quarter from a year ago, to $104.3 billion, when one ignores the impact of currency fluctuations, which hurt Wal-Mart's large overseas operations. At Target, sales fell 2.7%, to $14.6 billion in the second quarter.
Target Will Lead in a Recovery
Those numbers, however, reflect the trends of the past year, a particularly tough time. For investors and even executives, the crucial question is what happens next.
Those who are expecting an improvement in the economy and a recovery in consumer spending tend to favor Target.
"People were shopping at Wal-Mart because it was the cheap place to shop," says Bernie McGinn, chief investment officer at McGinn, McKean & O'Neill. An owner of Target shares, he believes consumers will gradually return to "a sense of normalcy."
"If you're feeling less pinched, you go out to Target," McGinn says. "You know you're going to get a good value, and you're going to walk out with something a little classier than [at] Wal-Mart."
Target is trying two strategies to win back customer traffic. First, it is reminding customers the chain offers good prices. Through its "Low Price Promise," Target now promises to match the advertised price on any product offered by a competitor in the same market.
At the same time, however, Target executives "really don't want to stray too far into deep discount territory," says Morningstar (MORN) analyst Kimberly Picciola. Thus, the chain must make customers aware of the value it offers, while also boasting of better merchandise and a more pleasant store.
Even as it touts low prices, Target is planning to offer clothes designed by Anna Sui, jewelry by Anna Sheffield, and handbags by Carlos Falchi.
As always, Wal-Mart emphasizes its low prices. "There's a 'new normal' now where people are saving more, consuming less, and being more frugal and thoughtful in their purchases," Wal-Mart's Duke said. He added: "Wal-Mart can continue to attract new customers, because we're helping [the typical consumer] to do more with what she has."
Christiana's Nyheim owns Wal-Mart shares because he believes consumers will remain very careful about their spending. "We think everybody's going to be competing on price for the next year, because we're going to be in a much slower economy," Nyheim says.
At the same time, however, Wal-Mart is trying to compete in ways other than price. Consumers may have traded down to Wal-Mart for its low prices, but the chain hopes to hold onto those customers through improvements in their stores, including renovations and improved layouts.
"Wal-Mart has done a good job of reinventing themselves and cleaning up their stores," says Steven Roge, a portfolio manager at R.W. Rogé & Co.
In 2008, while the recession was at its worst point and economists were gloomy, Wal-Mart was one of the most popular stocks on Wall Street. Since March, however, investors have become more optimistic. That has helped shares of other retailers, including Target.
While Wal-Mart shares have drifted lower this year, investor expectations for Target have improved dramatically. In the past 12 months, Wal-Mart shares are down 12.7%, while Target shares are down 11.4%. Since the start of 2009, Target shares are up 28%, while Wal-Mart's stock is down 8.4%.
Much of Target's recent gains occurred on Aug. 18, in reaction to second-quarter earnings, when shares jumped 7.55%, to 44.32.
Though the two chains are fiercely competitive, it's possible that both retailers could do well. As discounters, both have a natural advantage in hard times. In better times, both could see sales rebound.
Harvey Robinson, president of Robinson Capital Group, believes the economy is recovering but the consumer will remain "exceptionally cautious."
"As the economy picks up, I believe Wal-Mart and Target will continue to benefit," says Robinson, who owns neither stock. The move of customers toward cheaper options could be permanent, he says. "Consumers are more interested in buying from discounters."
In other words, a slight recovery in the economy could be enough to get shoppers buying again. But it may not be enough to send customers back to pricier specialty and department stores.
In any environment, the competition between Target and Wal-Mart will remain cutthroat. The onus is on Target to prove it can stop the slide in sales and customer traffic. And, Wal-Mart, with its global reach and deep pockets, is not known for taking competition lying down.
I’d love shopping at Target, as I believe it’s the better store. The only thing that makes me not like it much is it’s full of liberals(almost as bad as a chain book store), and they don’t sell firearms.
And what sucks - what really sucks - is that that at the warehouse that alot of us are hard core Republicans, conservatives, libertarians, or just plain don’t like Obama, and then the company won’t stand up to them when by all rights they should.
Have you checked this out for truth?...etc..
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If not mistaken individual stores just refer you to Corporate HQ where the ‘donations’ etc are handled.
Target, Walmart etal are to big to really ‘tick off’ a large group of potential customers and it probably is a lot cheaper to have one big donation rather than a bunch of mid sized ones from individual stores.
I know the big chain stores make you get permission to place Poppy Stands etc on Memorial and Veterans Day Week ends. Most of the time you have to go to Corporate for that also. Probably because it takes the ‘heat’ off the local manager when it comes to which group should be ‘allowed’ to solicit in front of the store.
No, shop at Walmart! My son has worked there for 3 years and it is helping put him through college! Lol.
Seriously though, I shop almost consistently at WM. I wear mostly black tshirts/tanks to work (shows oil less) and I’ve bought them from every discount store around here over the years, to see where the best ones are. I can buy one for $5 or $6 at WM and still be wearing it 2-3 years later. And they look good. The few I’ve bought at Target usually cost at least $12 and they shrink when they’re washed, every time. I don’t have money to buy a T I can only wear once.
My daughter pointed out the Archer Farms chips to my husband. They both have to avoid MSG and that brand contains none.:-) My husband loves them.
I shop at WalMart whenever I can and I am neither poor, nor white and I am certainly not a trash.
Are you just in a bad mood tonight, or is this what you really beleve?
Shop local “Mom & Pop” stores when possible first.
Pretty ridiculous statement.
No make that very ridiculous statement
What do you do when there are no local mom-and-pop stores around you, ones that carry what you need (basic Ts, Levi jeans, sheets, towels, aspirin and cough syrup)? I love to support locally owned, small business people. But around here, we have Walmart, Target, Kohl’s, Macy’s. We have Rite Aid and Walgreens. We have small local grocers that specialize in good cuts of meat or fresh produce. I rarely have the time to go to a half dozen stores to get what we need for the week. And there isn’t one locally owned clothing store around here anymore. Everything is a big chain. I miss the little stores.
Believe it or not, there’s still a K-Mart open about 5 blocks from my house.
I shop there about once a week for stuff like batteries, paper towels, Windex, etc. A lot of people looked down their noses at K-Mart bu I thought “What’s the difference between buying toilet paper at K-Mart vs Target?” There really is none.
Today, I was driving by and saw a bunch of “Store Closing” signs posted on the store. Looks like I’m gonna have to decide between Wal-Mart and Target from now on...
I don’t have that much of a preference between the two, but one thing I have noticed in the last month is that retailers have noticed trends in buying and have responded aggressively, and it says a lot about the economy. What is on sale now is not a small discount on a more expensive model or brand, but pretty deep discounts on “survival” items, like cans of corn, pasta, toilet paper, including the generic brands.
Not in my area.
The Walmart here is a sort of horrific multi-national concoction of third world clientele at an indoor Mideast street bazaar buying Chinese junk by the ton.
Unless I'm hunting for ammo (which Target doesn't carry) I avoid visiting there if at all possible.
I will NEVER fo to Target because they will not allow the Salvation Army bellringers in front of their stores at Christmas time.
I will NEVER go to Target .....
Target is owned by the Dayton family. The Dayton’s are one of the biggest powers in the Minnesota DFL and in the Democratic party. They are also some of the biggest contributors to moonbat leftist causes and organizations.
Remember Sen. Mark Dayton (D-MN)? He introduced legislation in the senate to create a “Department of Peace” (Dennis Kucinich introduced it in the House). He is an heir to the Dayton family fortune.
I will not shop there, sorry. I don’t care if your kids work there, folks.
My personal preferance is to buy local, so that’s what I do. I’m not thrilled with Walmart’s business practices, so I avoid the place. But I don’t encourage anyone else to avoid Walmart. That’s a decision each consumer has to make for themselves.
I used to love Wally World, but they’ve ticked me off now with all their environmental propaganda and their support of nationalized health care.
Also, is there anything at Walmart that doesn’t come from either China or Mexico?
I always preferred Target.
Good prices and better quality.
Same here. That "I'm going to get mugged" factor is greatly lower in Target than Wal-Mart.
This absolutely KILLS the Left who despise Walmart for their anti union stance. The plain fact is no matter what people say about never stepping foot in a Walmart, about how “dirty” the stores are, how unhelpful or non existent the help is (I have found NONE of this to be true to any greater extent then any other store who is advertised as a discounter), people still shop there and will continue to do so.
In the end, all things being equal a Widget made by ABC Corp and sold for $10.00 at Sears or Target and $73.95 at Walmart will see it’s best sales where the price is lowest. Not sometimes, not most times but every time.
Honestly, I can’t answer you question, but you know what you can do. Oh and a little tidbit... all the rumors about Target being French, being gay, etc. were started by WalMart.
Target is an American based company and has been for decades.
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