Consumers Choosing to Tough It Out with Wal-Mart

Discussion
Feb 22, 2008

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?

Please practice The RetailWire Golden Rule when submitting your comments.

Join the Discussion!

23 Comments on "Consumers Choosing to Tough It Out with Wal-Mart"


Sort by:   newest | oldest | most voted
Charlie Moro
Guest
Charlie Moro
14 years 3 months ago

I do not believe you will see a radical change in the targeted guest or the offerings made by Target. They have looked for a specific demographic and over time, they should be able to fine tune small parts to reignite their sales engine.

The biggest change over time may be where the other mass merchants shake out in this. Wal-Mart has been presented with a great opportunity with this economic slowdown. If they can continue to improve on the shopping experience–especially with customer service and employee training–they will do very well.

Target’s opportunity is in looking at segments of the consumer base that they can best match. Something like the purchase of the Kenmore and Craftsman brands as part of the Target assortment would be such a nice fit.

Steven Roelofs
Guest
Steven Roelofs
14 years 3 months ago

I second what others have said. Just because I have cut back my purchases at Target does not mean that I am shopping at Wal-Mart. It simply means that I have cut back my purchases.

With rising gas, electricity, taxes and food prices and a stagnated income, I ask myself if I need that candle holder, book, bedding, shirt, shoes, etc., or can I make do with what I have a little longer? Wal-Mart’s success could be coming at the expense of Kroger, Safeway, Circuit City, Toys R Us and dozens of other stores that sell similar items, but who knows for certain from this limited research?

Craig Sundstrom
Guest
14 years 3 months ago

I’m going to don my Nostradamus hat here an make a prediction for a news story we’ll see sometime in the next year or two:

“With Target’s same-store sales rising a robust 2x%, and Wal-Mart’s rising a meager x%, analysts are calling on the latter to modify their EDLP strategy and position themselves as a more upscale merchandiser.” The only question is what date we’ll see this.

Target doesn’t need do do anything…other than buy back Marshall Field’s: Please !

Mark Hunter
Guest
Mark Hunter
14 years 3 months ago

Target has done a great job in creating buzz which creates traffic and sales. The problem with buzz is you have to keep doing it. It seems that over the past year, Target has not been doing enough to feed their buzz, leaving the door open for Wal-Mart and their low price image. Until Target cranks up the “buzz machine,” Wal-Mart is going to continue to win.

Li McClelland
Guest
Li McClelland
14 years 3 months ago

For more than a decade, Target Corporation has striven to cut a distinct and unique niche for itself, both in the minds of American shoppers and in the minds of its shareholders. It has largely succeeded.

During past regularly scheduled economic downturns, executive management of companies have shown their true mettle either by panicking and floundering and going all goofy, or by calmly tweaking and refining what they have built until the crisis passes. I hope and expect Target will do the latter, because, as others have mentioned here, a careful read of the articles attached to this discussion does not suggest that Wal-Mart’s growth comes heavily at Target’s loss. A better question is, at which stores’ expense is all of Wal-Mart’s increase in grocery revenue coming from?

Don Delzell
Guest
Don Delzell
14 years 3 months ago
Perhaps some relevant numbers: -1.9%, -6.6%, -7.1%, -8.3%…comp results for January for J.C. Penney, Nordstrom, Macy’s and Kohl’s. As has been pointed out, analyst assumption and relevant market research has never indicated that Target’s gain came primarily at WM’s loss. Rather, TGT has always been the victor in the battle for the lower-moderate department store shopper. Yes, there is some leakage upward from WM, particularly in softlines. Yes, there is a high probability that WM hardlines and grocery shoppers may extend their WM market basket into softlines at the expense of TGT–at least for as long as disposable income remains tight. Target does not need to change its positioning to address WM’s positioning. However, the note about grocery found in previous comments is very apt. In this environment, part of the mass merchant’s goal is to capture share of shopping behavior. Economic downturns tend to reduce the average number of shopping trips consumers make. Thus, in many ways, the market share game is won by capturing a higher share of those trips. Target is not,… Read more »
Gene Hoffman
Guest
Gene Hoffman
14 years 3 months ago

To the three questions: 1)The economy is softening and the family squeeze is on. Thus in these dog days more consumers are heading for Wal-Mart to make their bucks bark louder.

2. Target is very good as Target but won’t be as a surrogate for W-M. Target should stick with who they are and continue to serve their more discriminating sector better than ever and more innovatively. The more rational Target is, the the less it will suffer than if making concessions to other retailing styles.

3. W-M’s current opportunity: Blend things upward and try to keep some of the newly recruited customers in Bentonville’s grasp after the current economic winds pass through recession’s willows. W-M should not rely on price alone or their linoleum-type stores probably won’t be able to keep captured Target customers down of the W-M farm.

Ben Ball
Guest
14 years 3 months ago

Reemphasizing and refreshing the best known retail brand positioning in America–“Lowest prices everyday”–works?!? What a novel idea! Maybe the economic slowdown is helping a bit, but I agree with most above–that isn’t the real driver of either Wal-Mart’s success or Target’s distress. One is staying on (ok, returning to…) core message and the other is straying a bit. None of us, including Wal-Mart and Target, should be surprised at the result.

Jeff Hall
Guest
14 years 3 months ago

Target has strategically and successfully defined a unique brand position within an overcrowded retail landscape–simplified product choice, quality, an enhanced lifestyle through design, terrific private label offerings, competitive prices and a pleasant customer experience.

Target has also shown an ability to stay focused on the long-term, and though it continually refines and elevates its offering, it has been smart to avoid knee-jerk reactions to shorter term economic cycles.

Though a great many consumers have less discretionary income today than they did three, six or twelve months ago, there is room for Wal-Mart and Target to both be relevant and successful. As consumer spending tightens, it will be others who are impacted by any fallout.

Marty Walker
Guest
Marty Walker
14 years 3 months ago
What I find most interesting is the leap of assumptions made by the researchers to independent facts and figures, and the analysts to their drawn conclusions, not to mention a few “experts” along the way. I did not see the evidence indicating that Wal-Mart’s gains have come at the direct expense of Target’s losses. I was not aware that Target’s positioning was ever based on their market share coming through a direct pull from Wal-Mart’s daily customer base, their demographics, or their price/promotional strategy. As most of us can attest, we have both Wal-Mart and Target in our zip codes, and the real estate selections and shopping center profiles hardly suggests a battle for the same space. True, Target is soft now, and a couple of our responders intelligently pointed out recent flaws in short term strategies; assortment, pricing, etc, that as with any retailer, has negative ramifications. To respond by trying to follow the WM path, somehow assuming it must be because people are making these so called conscious (or conscientious) change of loyalty… Read more »
Nikki Baird
Guest
Nikki Baird
14 years 3 months ago
I am a huge Target shopper. We do all of our grocery shopping there every week, and when we go we walk the whole store, not just the grocery section. I think there are two places where Target has gone awry. One, they’ve adjusted their advertising slightly and I think it de-emphasizes all the great national brands that Target carries–this was the brilliant part of their ads to begin with, that they were like big co-op smorgasboard of Clorox and Kraft and whatever, but without losing that Target brand and flair. The “Hello Good Buy” campaign is classic Target, but without the national brands. I don’t think they’re as effective at driving traffic. Second, I think Target has lost its price point. It’s great that it brings in Mossimo and Michael Graves and they have defined “cheap chic,” but the price points have been creeping upwards. And retailers that are focused on bringing high-end stuff to the mass market, I think, are the ones that will be hit hardest and first by consumer lack of… Read more »
Mark Burr
Guest
14 years 3 months ago

I won’t be running to Wal-Mart. My guess is that ‘economic’ issues won’t cause those not inclined to shop there will draw them there either. I disagree with the entire premise.

If the premise were to be accepted then one might think that those stepping down would step down to Target on the way before sliding all the way to the bottom to Wal-Mart.

Lisa Bradner
Guest
Lisa Bradner
14 years 3 months ago
I love this! For years Wal-Mart has been drooling after Target’s customers and straying from their brand positioning with often disastrous results. Now Wal-Mart has found its way back to EDLP and the core values that its customers count on at the same time economic downturn favors its approach. Great timing for Wal-Mart and lucky for them they’re not sitting on more skinny jeans in this climate. I liked the comment about assortment–it’s true, Target truly curates the assortment (number of brands and numbers of sizes) available to consumers and I think they may find they have been overly selective. Consumers like choice–they’ll sacrifice it for a great deal (hello, Costco!) but Target now has the problem of not being as upscale as Costco nor as cost conscious as Wal-Mart. Target has several problems to address: they don’t move the same volumes as Wal-Mart, they don’t have the same operational efficiency and yet they want to be priced competitively. They’d be well served to look at operations while at the same time continuing to embrace… Read more »
David Livingston
Guest
14 years 3 months ago

Consumers have always chosen Wal-Mart over Target. That’s obvious by looking at overall sales, sales per store, and sales per square foot. But that does not mean Target needs to change. The economy is constantly changing and there is no way to react to all the weekly changes. Target is best to stay on track rather than panic at every little change in the economy.

Susan Rider
Guest
Susan Rider
14 years 3 months ago

The perception is that Wal-Mart has better prices. When average consumers are stretching every penny, they lean toward Wal-Mart, when they have disposable funds and feel good about the economy they will splurge and go to Target. In one poll, women said that they know they pay 2-3% more at Target but they would rather shop there for the experience, when the economy is bad that choice changes.

Target is perceived to be more upscale, trendy and stylish. Wal-Mart is perceived to be basic, no frills, good prices. Will Wal-Mart keep these consumers? Depends on their experience. Should Target be a ‘me too’? I don’t think that will work! What they could do is keep their overall plan and roll out a price slashing campaign for the economy like Wal-Mart just announced.

J. Peter Deeb
Guest
14 years 3 months ago

Wal-Mart has an inherent advantage in tough economic times–Supercenters! These one-stop shops in a large portion of the US give shoppers the opportunity to buy food for home economically and also reinforce the low prices on apparel and hard goods. One-stop also means less gas to buy. Target is not positioned to do this except in a limited area where Super Targets exist.

Target should consider a change in its advertising strategy to move from subliminal suggestion to a more hard sell, featuring price and variety to survive the current economic climate.

Dick Seesel
Guest
14 years 3 months ago

There are a couple of issues going on right now that are benefiting Wal-Mart and hurting Target. First, Wal-Mart is correctly positioned in the current slowdown. It has hit its “heritage” message of price very hard over the past several months and has a stronger focus on consumables than Target.

Second, Target is having execution issues of its own. In theory it should be capturing share from mid-tier retailers of apparel and soft home as consumers trade down at all levels of spending. But Target’s own product development needs some refreshing in order to overcome the general softness in women’s apparel in particular.

Max Goldberg
Guest
14 years 3 months ago

The research provided the clues. WM is perceived as having the lowest prices. This has been WM’s brand message for years. In troubled economic times that message is resonating with consumers. Target’s message of chic fashion and housewares is not what many consumers are looking for at this time.

David Biernbaum
Guest
14 years 3 months ago

There are so many reasons and possibilities for why Wal-Mart does better than Target in a sluggish economy but for one, the Target consumer tends to be a young trendy consumer that might have less individual spending power or disposable income right now at this present time.

Secondly, Target has limited its product assortment to certain standard that might not fit in as well with an economic downturn, and finally, Wal-Mart has well established its EDLP philosophy, and although most consumers don’t know exactly what that means, they really do sense it.

Ed Dennis
Guest
Ed Dennis
14 years 3 months ago

I would shop at Target more, but they just don’t have what I need and don’t seem to care. For instance, I use a quantity of over the counter medication. This product has been on the market for over 30 years, but Target doesn’t stock it–Wal-Mart does! I have spoken to the pharmacist at Target and they inform me that “we don’t have that” (news).

I also get the feeling that Target makes a great effort to decide for me what I might want and then place a higher price tag on it than Wal-Mart. I’ll stick with Wal-Mart for the selection, service and pricing. Now my kids think that Target is great. They will actually wear clothing bought at Target. If it keeps them and their mother out of Saks and Lord & Taylor then I have to praise their powers of marketing and merchandising.

Charles P. Walsh
Guest
Charles P. Walsh
14 years 3 months ago

Target’s success has been, and will continue to be, based upon their ability to execute along the lines of their core competency. Have they slipped? Yes, it appears that their core customers are spending less, at least at Target. So no radical surgery needed, just a return to their core competency.

Wal-Mart strayed away from it’s historical core competence and sales reflected it. A return to their legacy of low prices seems to be paying off.

So it’s not all doom and gloom, it’s a matter of mechanics and Target will be back in the game. They share an important niche in the retail landscape and their customers want them to be just exactly who they’ve always been.

At least for now.

Mark Lilien
Guest
14 years 3 months ago

Wanna raise comp sales trends? Build fewer new stores. Wal-Mart’s worst competitor in the USA is not Target, it’s Wal-Mart. Target’s worst competitor: Target. Both chains have too many locations. A new location cannibalizes the traffic of older nearby locations. Wal-Mart announced significant cuts in new store growth. As night follows day, that means improved comp sales. Target, Wal-Mart, Macy’s, Nordstrom, J.C. Penney, Kohl’s, Whole Foods, et al should all go on a 5-year construction strike: no new locations for 5 years. Watch the comp sales grow and the ROI soar.

Casey Quinlan
Guest
Casey Quinlan
14 years 3 months ago

Target doesn’t compete with Wal-Mart across all verticals–the most prominent of those being food. Once you’re in the store for food (and Wal-Mart’s prices are hard to beat in that arena), why not cruise the rest of the aisles and pick up the rest of the list of we-needs?

I think Target is missing an opportunity here, especially since their dedicated base, the more trendy and/or upscale shoppers, would likely abandon Wal-Mart completely if they could get their weekly food shopping done at Target.

With gas over $3/gal, and no relief in sight, who’s in the mood to hit more than one store if you can get everything you need under one roof? Wal-Mart has even expanded its organic offerings, guaranteeing that upscale moms who are picky about what they feed their kids will find–surprise, surprise–a wide variety of organic poultry, dairy, and produce options.

wpDiscuz

Take Our Instant Poll

How likely are consumers, now being drawn to Wal-Mart, to stick with the chain once the economy rebounds?

View Results

Loading ... Loading ...