Wal-Mart and Target: A tale of 2 discounters

Associated Press Modified: November 15, 2012 at 7:00 pm •  Published: November 15, 2012
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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 percent 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 percent 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.

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.



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