Can Target keep its cool?
The retailer likes to be known for its pricier, trendier designs. But that doesn't fly in this economy.
You want cheap stuff? Go to Wal-Mart (WMT). But if you want fresher, better-looking, more awesome stuff, go to Target. Oh sure, you'll pay more, but that's the price of being cool.
Target has Zac Posen. Target has seahorse wedge sandals. A $60 wall mural. A $70 pair of earrings. But as the economy continues to sputter, what Target doesn't have is enough sales.
"Has Target lost its cachet?" wonders The Wall Street Journal this week. The company had just a 2% rise in same-store sales for its fiscal first quarter, far below the 3% to 4% analysts were expecting. And sales in May were at the low end of guidance at a 2.8% increase.
Target stock is described as "dead money" in the following video, but one with a bright spot. Post continues after video:
The problem here is that customers can't afford the pricey, trendy items that Target wants to be known for. They're stocking up on toilet paper, toothpaste and other necessities, but they aren't going anywhere near the $200 blue-and-chocolate armchairs that bring more profits.
Target's stock price is down more than 25% year to date. Like Wal-Mart, the company is losing shoppers to dollar stores and other discount stores. Investors are going that way too; well-known investor Bill Ackman has just snapped up 8.9% of Family Dollar (FDO).
But studies have shown that Target's prices are low -- even lower than Wal-Mart's in some cases. This spring, one consultant compared 35 brand-name items sold at both stores, and found that for the first time in four years, Target had the best deal: $269.13 compared to $271.07 at Wal-Mart.
But it's exactly those lower prices that may be confusing shoppers, one analyst told the Journal. Is Target still going after the wealthier crowd now recovering nicely from the recession, or is it reaching for lower-income shoppers living paycheck to paycheck? Can it please both groups?
"The stores look good, the merchandise looks good, but a large number of Target shoppers are strapped by higher gas and food prices," one Janney Montgomery Scott analyst told the Journal.
Target is seeing its profit margin take a hit, and that will likely continue until more shoppers are willing to return to the aisles with designer clothing and funky home furnishings.
Copyright © 2014 Microsoft. All rights reserved.
'We're not exactly in a uniformly strong market,' says the notably pessimistic newsletter publisher.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.