DISCUSSION

Consumers Choosing to Tough It Out with Wal-Mart

February 22, 2008Written by George Anderson

When the going gets tough, Americans apparently go to Wal-Mart and not Target. That is the finding of a new consumer survey from Citi Investment Research.

In a note to investors, Deborah Weinswig, an analyst with the investment firm, wrote, "Wal-Mart's every day low-price message is consistently strong and resonates well in a tough consumer environment... an overwhelming 87 percent of customers surveyed said that Wal-Mart had the lowest prices."

In addition to its low price reputation, the availability of everyday goods contributed to the view of Wal-Mart offering "a one-stop shopping experience," according to Ms. Weinswig.

"Target is not perceived as a destination for basic needs, which we believe is why the retailer's traffic trends are weaker than those of Wal-Mart," she added.

Target's same-store sales in January decreased 1.1 percent. This followed a five percent decrease in same-store sales in December. Wal-Mart posted comparable store increases for the two months.

Neil Currie, an analyst with UBS, wrote in a note to clients that consumers currently being drawn to Wal-Mart give it the opportunity to improve its margins in areas such as apparel and housewares as many seek a "return to basics" in their lives.

"It's now a matter of Wal-Mart further fine-tuning store execution in its U.S. operations, which, along with successful merchandise categories... offer prospects for ongoing sequential sales improvement," he wrote.

Discussion Questions: Why are consumers appearing to choose Wal-Mart over Target? Does Target need to make changes to its positioning or does it seek to ride out the current rough economic patch as is? What are the opportunities being presented to Wal-Mart?

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