Wal-Mart and Target: Tale of 2 discounters

Holiday sales at the two rivals will likely also tell the story of how a rough economy has treated the nation's haves and have-nots.

By MSN Money Partner Nov 16, 2012 2:14PM

By The Associated Press

 

This holiday season, the biggest discount chains in the U.S. will tell the tale of two very different shoppers: those that have and those that have not.

 

Wal-Mart Stores (WMT), the world's largest retailer, on Thursday acknowledged that its low-income shoppers continue to struggle in the economy and issued an outlook for the fourth quarter -- which encompasses the holiday shopping period -- that falls below Wall Street estimates. On the same day, its smaller rival Target (TGT), which caters to more affluent shoppers, said it expects results during the quarter to exceed the Street's projections.

 

The two discounters offer valuable insight into how Americans will spend in November and December, a period that's traditionally the busiest shopping period of the year. (Article continues after video.)

 

Some merchants depend on the holiday shopping season for up to 40% of their annual sales, but economists watch the period closely to get a temperature reading on the overall mood of American consumers.

 

The forecasts seem to confirm a trend that has taken shape during the economic downturn. Well-heeled shoppers spend more freely as the economy begins to show new signs of life, while consumers in the lower-income brackets continue to hold tight to their purse strings even as the housing and stock markets rebound.

 

Different audiences

Wal-Mart and Target both are discounters, but they cater to different customers. Wal-Mart, which says its customers' average household income ranges from $30,000 to $60,000, hammers its low-price message and focuses on stocking basics like tee shirts and underwear along with household goods. But Target, whose customers have a median household income of $64,000 a year, is known for carrying discounted designer clothes and home decor under the same roof as detergent and dishwashing liquid.

 

Even the tone that the retailers struck on Thursday was different. Charles Holley, Wal-Mart's chief financial officer, told reporters during a call that the retailer's customers still are worried about high unemployment and higher basic costs for things like gas. He said he also worries that they also will have some anxiety over big tax increases and spending cuts -- known as the "fiscal cliff" -- that will take effect in January unless Congress and the White House reach a budget deal by then.

 

"Macroeconomic conditions continue to pressure our customers," Holley said.

 

Meanwhile, Gregg Steinhafel, Target's chairman and president, told investors: "We feel good about our ability to deliver inspiring merchandise, most-wanted gifts, and unbeatable value, while also generating expected profitability."

 

The fortunes of the two retailers have changed during the economic downturn.

 

No more trading down?

Wal-Mart at first fared well during the slowdown as affluent shoppers traded down to its stores. But the company eventually began to lose some of its core low-income shoppers in the process.

 

The company, based in Bentonville, Ark., posted nine consecutive quarters of revenue declines in its U.S. namesake business as it moved away from its lowest prices strategy and got rid of thousands of basic items its core customers covet in an effort to de-clutter the stores.

 

Wal-Mart's namesake U.S. business, which began re-emphasizing low prices and restocked shelves in 2010, reversed the decline last year. The business has recorded five consecutive quarters of gains in revenue at stores open at least a year, an indicator of a retailer's health.

 

But its momentum has slowed. Wal-Mart said Thursday that its namesake U.S. business had a 1.5% increase in revenue at stores open at least a year. But the gain is short of the 1.8% increase Wall Street expected. It's also a slowdown in growth from the 2.2% gain the business posted in the second quarter and the 2.6% increase it had in the first quarter.

 

Wal-Mart issued a fourth-quarter profit outlook that's below analysts' forecasts. For the quarter, it expects earnings per share to be between $1.53 and $1.58, below the $1.59 analysts expected.

 

"It shows that its consumer is still struggling," said Ken Perkins, president of Retail Metrics, a research company.

 

Target, based in Minneapolis, initially struggled during the economic slowdown. Its fashion-forward image hurt it during the downturn: People didn't perceive Target as having the best prices.

 

To combat that, the retailer expanded its food offerings and began to emphasize low prices in its advertising — two things that put it in direct competition with Wal-Mart. It also started a 5% discount program for customers who use its branded credit or debit cards.

 

But its focus on prices and groceries cost it some cachet, and its performance has been choppy. The latest results show that Target has found a balance between fashion and price. Target said Thursday that revenue at stores open at least a year rose 2.9% in the third quarter, roughly in line with Wall Street estimates.

 

For the fourth quarter, which ends in January, Target said that it anticipates adjusted earnings of $1.64 to $1.74 per share. That beast the $1.51 per share analysts expected.

 

"Looking ahead, we are confident in our holiday merchandising and marketing plans," Kathee Tesija, Target's executive vice president of merchandising, told investors on Thursday.

 

Holiday strategies

The difference between the two discounters is becoming more apparent during the holiday shopping season, as both discounters attempt to cater to lure different shoppers into stores.

 

Wal-Mart last week said it will offer deeper discounts and a broader assortment of merchandise. The company also started its holiday layaway program a month earlier than a year ago and lowered its fees for the program from $15 to $5.

 

The move seems to working. It has booked an additional $300 million in layaway business compared with a year ago. The company will record sales for layaway during the fourth quarter.

 

Target, on the other hand, is trying to appeal to higher-end shoppers.

 

The retailer is teaming up with luxury merchant Neiman Marcus to offer a limited collection spanning from fashion to sporting goods. More than 50 products from 24 designers, including Oscar de la Renta and Diane von Furstenberg will be available at both stores and on their websites starting Dec. 1 until they are sold out. Target is also bolstering its home area with names like Nate Berkus, which launched late last month.

 

Target told investors Thursday that it hasn't offered layaway like Wal-Mart because its customers haven't asked for it. Still, the retailer is playing up value.

 

Target for the first time is matching prices that customers find on identical products at some online competitors this holiday season, including Walmart.com and Amazon.com. The price match program, which covers the period from Nov. 1 through Dec. 16, is an attempt to combat the "showrooming" trend in which shoppers use their smartphones while they're in stores to browse for products at cheaper prices.

 

Target's customers may be a little more resilient than Wal-Mart's to the economy's woes, but Target officials said that the retailer expects shoppers to remain cautious

 

"Our research with (customers) indicates they are continuing to shop with discipline, focusing on lists and budgets and occasionally splurging on more discretionary items," said Target's Tesija.

 

VIDEO ON MSN MONEY

110Comments
Nov 16, 2012 2:54PM
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Walmart.....30 checkout lanes and two of them are open....screw that.
Nov 16, 2012 3:03PM
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Target is cleaner and nicer employees.
Nov 16, 2012 2:37PM
Nov 16, 2012 3:16PM
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I will not shop at Walmart and recently cut up and sent back my Sam's Club membership card.  The Walton Children could well afford to keep their prices low and still take care of their employees but choose not to.  How many billions do you need?  When I heard they were cutting hours and hiring temps to avoid paying benefits that was the last straw for this family.
Nov 16, 2012 3:06PM
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Walmart will be open 8 PM Thanksgiving.  If after stuffing yourself with dinner, your life is so pathetic you have to spend Thanksgiving evening at Walmart, please get help.

Seriously, you're life is sad.  Enjoy your national holiday, & give the Walmart employees a break.  Trust me on this, the stuff on sale at 8 PM is trash.  Why did you think they have to put it on "sale" when you're half asleep from tryptophan?  Get a good night's sleep, wait until morning, & get something worth the price.

Nov 16, 2012 3:17PM
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The few times I have purchased something in walmart the item has either broken, shrunk to nothing, seams have come undone, etc.  The quality is so poor, I refuse to go there for anything.  On the other hand, I shop at Target weekly, they have great merchandise.  Have been buying all my kid's clothes there and lots of home stuff.  The prices are better than elsewhere and the quality is very good. 

Nov 16, 2012 3:04PM
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Walmart is known to be against sport fisheries all over the US, I won't shop there - the place is disgusting, they have done more damage to this economy than you can imagine or that anyone can calculate.
Nov 16, 2012 4:03PM
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People, wake up and take a look at the big picture. Its not going to help us as Americans to compare Walmart to Target or any other large retailer who sells nothing but crap from China. Its not going to help s by bitching about service or staffing or quality. Lets bitch about what the Chinese have taken from us That, which we have worked for over a hundred years. The AMERICAN WAY OF LIFE. They have taken that away. Now its time to take it back. Make some sacrifices and pay a little more. Shop your local retailers.
Nov 16, 2012 4:30PM
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Wal-Mart is the next K-Mart. Unless they re-boot and go to back Sam Walton's way of doing business, their parking lots will be as empty as K-Mart's. I was a manager for Wal-Mart when Sam Walton was alive. There was better customer service, cleaner and better merchandised stores and very important, we promoted the fact that we bought American.......... Those days are gone and the people managing their stores today did not know Sam.
Nov 16, 2012 3:23PM
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I have 2 close relatives who work at Target.  What these stores do is bring in "special" products & put them on "sale" for the early opening hours Thanksgiving.  These items aren't really on sale, because the stores never carry, except for these special offers.  So they are special, but you'll find they the absolute, trashiest, poorest quality, garbage these stores have ever offered.

Spend a few extra dollars & get something worth having.  Don't spoil your holiday standing in line at Walmart or Target, especially at that time of night.  Best of all, you can wait until a decent hour the next morning.  There's plenty of stock for Black Friday.

Walmart for Thanksgiving?  Really?  Your life is that sad?

Nov 16, 2012 2:52PM
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Wal-Mart has low prices, someone on a low budget will need to shop there, many shop there and many will not.   Target is a good place also, can find better quality.  What about KMart?  All have items from different countries, just buy U.S. made if this concerns you.
Nov 16, 2012 4:21PM
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Walmart is for low income shoppers???.....just a thought,  but maybe people want to keep more of their money, just check the parking lot sometime.
Nov 16, 2012 3:28PM
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The store is much cleaner n the Team Members are friendly n very helpful.  I dont like Walmart cos they are rude, the store is dirty n I dont like the Super Walmart that just opened near me.  The store layout is dumb. All the grocery items are not together 
Nov 16, 2012 4:10PM
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I don't see any difference between Waltmart or Targe merchadise or service. both are the same. if shoppers do their homework and read the labels of merchandize dispite if the have english names or italians or whichever ; they ALL ARE MADE IN CHINA>>CHINA... people read the labels if u care about the quality of items,clothings or whathaver. and you will found out

 

Nov 16, 2012 3:44PM
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I'll bet that the "Poor people " of Walmart ALL have at least 1 cell phone apiece,widescreen TV,new cars and have ALL seen latest Twilight movie. Different versions of poor I guess.
Nov 16, 2012 4:36PM
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The problem I have with Wal-Mart, in order to offer good for a cheaper price, they have the product 're-engineered'. There was a lawn mower company (can't remember the name) that refused to cheapen their product just to increase their sales to Wal-mart. Now if it's cheaper, say on TV's and electronics........the SONY TV you get at Wal-Mart is NOT THE SONY TV you buy at a different retail store. So, it's a wash for me. I'll spend a little more to know that it has not been cheapened on the inside. 
Nov 16, 2012 4:28PM
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2 great American stores with cheap prices, but I still prefer shopping online.
Nov 16, 2012 4:22PM
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Walmart is your local ghetto store, gangs and riffraff hang out there, constantly sending off the buzzer at the front door. If you are caucasian, your children are harrassed. Cheap, cheap and more cheap products, not meant to last. China Mart is what it really is. On welfare card day, they pull out all the outdated or use buy stuff and put it on the shelf to be sold. These folks don't pay attention to things like that. They are getting free food, not paying even the tax. Don't even go there on the welfare day, car not safe, big fat women of all nationalities fling there door open, starved to get the free food, and ding and beat a car to death. Police won't do anything because it is on private property. Need to go back to relief food, a box of cheese, meat, powdered milk, and powdered instant bread mix, good for a lot, it is incentive to get a job. I was a single parent, raising my daughter on my own, mother didn't contribute a dime, but I was in eligible for help from DHS, but big fat illegals could fill their basket, and often I felt angry because I could not afford much, while my daughter and I lived on the cheap, they just got fatter. Walmart caters to the welfare dollar, prices has increased. Especially on all thing that a fat family needs. Walmart is a junk store, spoilage everywhere. It is a store that needs to be shut down, and those folks jailed for extorsion. Walmart is the soical crime scene in any city, catering lot the low lifes that voted for Obama.
Nov 16, 2012 3:30PM
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America needs more people who get things done and less people who sit in their living rooms and take shots at others.  So, for those of you who bash walmart, why don't you stop, and instead go open a store in the slums.  You are part of the solution, or you are not, bashing walmart is useless.
Nov 16, 2012 3:25PM
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Target is the best fior products,customer service n deals. I love the REDCARD saves 5%
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