Is Target on the Right Path?
It wasn’t that long ago that retail industry experts were saying Target needed to do something to stem the numbers of shoppers heading to Walmart to buy everyday staples. Today, the company is being criticized for the low margins associated with getting greater numbers of people to buy food products in its stores.
For a little history, a 2008 report by Citi Investment Research found that 87 percent perceived Walmart to have lower prices than Target. Many consumers were flocking to supercenters that offered food items not available at locations with the bull’s eye logo.
Deborah Weinswig, an analyst at Citi, wrote, "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 Walmart."
More recently, Target has used its P-fresh food initiative to give consumers a reason to shop its stores more frequently. A number of pricing comparison surveys have found Target to be cheaper in many instances than Walmart. The company’s REDcard program, which offers holders a five percent discount on all purchases, has been successful in increasing market baskets, while the rate on delinquencies has steadily dropped.
Despite the steps it has taken, a same-store sales increase of 2.8 percent in May was seen as a disappointment by Wall Street. Some are beginning to question if Target has lost its cheap chic way as consumers fill their baskets with groceries.
Adrianne Shapira, a retail analyst at Goldman Sachs, told The Wall Street Journal, "It is as if they have fallen off people’s shopping list for discretionary products."
Target management and some supporters argue that the company is on the right track and simply operating in a complex retailing environment.
"The stores look good, the merchandise looks good, but a large number of Target shoppers are strapped by higher gas and food prices," David Strasser, retail analyst at Janney Montgomery Scott, told the Journal.
- Consumers Choosing to Tough It Out with Wal-Mart – RetailWire
- More Target Than Tar-zhay? – The Wall Street Journal
Discussion Questions: What is your assessment of Target at the present time? Has it lost its cheap chic way or do lower sales in areas such as fashion simply reflect a cautious consumer base dealing with higher fuel prices, etc.?