Welcome to the 90th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions, and just a bit of everything else when it comes to a very hot topic these days: Wal-Mart.
Wal-Mart Stores, Inc. (NYSE: WMT) has seen striking results in the last few months while the rest of retail flounders and predicts some kind of impending retail apocalypse. Consumers are spending less, credit is still tight and folks are losing their jobs in large numbers. But hey -- gas is at the cheapest level in five years.
Wal-Mart's success recently lies in the fact that it has never strayed from being known as the absolute low-price leader in retail (in perception, and in most costs reality). But, where has Target gone? Throughout 2007, Target was growing faster than Wal-Mart and it seemed the Minneapolis-based retailer was somehow beating Wal-Mart at its own retail game -- a chore very few retailers have managed to accomplish. Where do those efforts stand now, at the end of 2008?
Wal-Mart: the low price perception that fits reality
Target Corporation (NYSE: TGT) has been on a roll recently. The second-largest discount retailer in the U.S. was enjoying quite the competitive war with Wal-Mart throughout 2007 and into the first half of 2008. I covered this rivalry quite extensively here at BloggingStocks during that time, and it was a neat battle to watch. Target's marketing was always geared towards those that wanted the style and experience of a higher-end retailer, but with the secret wish for those same ever-low prices that Wal-Mart had made famous over the last few decades.
Target's trademark red color, its stores and its merchandise were always bright and cheery, and it created a department store experience for many instead of the hastily-arranged, big-box type of retail shopping experience Wal-Mart generally provided. Where Wal-Mart was dull and lifeless (but cheap), Target was bright and energetic (and still cheap as well).
Wal-Mart's attempt to recruit higher-end shoppers to buy higher-margin goods was launched in 2007 to mediocre response. It was probably an undertaking that did not have the best chances for success, but the retailer needed to branch out and grow more instead of just growing the low-margin bottom line with its core customer base. It was, by any stretch, trying to steal Target's customers away with brighter stores, a re-vamped shopping experience (to a point) and goods that would have possibly put Wal-Mart on a larger plane of retail existence.
Then the housing and financial meltdown of 2008 happens. Wal-Mart, being prescient or not, changes its marketing slogan to "Save Money. Live Better." -- an update to the "Everyday Low Prices" it had used for a very long time. Just as U.S. shoppers were reeling from high gas prices, millions saw their homes foreclosed on or their debt skyrocket without any rise in liquidity.
Then, the summer of 2008 comes and financial shenanigans cause the market to tank, and the U.S. auto industry start reeling due to the inability of many customers to obtain credit for new car purchases. Then the layoffs begin, and it's officially recognized that the U.S. is in a economic recession. The standard U.S. consumer starts realizing that the financial pinch is on, and millions of existing (and "new") customers begin invading Wal-Mart stores like there is no tomorrow. There is one goal: save as much money as possible on as many items needed to live as possible.
Wal-Mart's core strength - one that Target does not have
At the time the U.S. economy started imploding this year more customers showed up to Wal-Mart's doors for bargains. At the same time, Target's status as the "cheap chic" of retail was quickly replaced by the need for ultimate savings at the cost of the experience and marketing Target provided to recruit shoppers. It just goes to show us all how fickle the American consumer can become, but then again, these are very odd times.
It's hard to recall how many things "went wrong" in 2008 in one breath or without bending our collective minds into a giant pretzel. The overextension of mortgage holders to the financial companies betting (incorrectly) on wafer-thin promises to automakers seeing a huge drop in sales to companies slicing over a million jobs in such a short time makes for interesting retail times. When it all hits at once, that's when the retailers who are prepared to respond to a crisis jump into action.
After shopping at a few local SuperTarget locations over the last few weeks, I compared several food and general merchandise items between Target and Wal-Mart and it was easy to see why hard times have fallen on Target recently. From bottled water to ravioli to toilet tissue to flat-screen TVs, Target was consistently higher on its prices than Wal-Mart. Anywhere from a 5% to a 15% price increase was seen on these items (same exact model number in some cases), and this during the busiest shopping month of the year.
Has Target increased prices or has Wal-Mart steadily lowered them to keep the low price perception alive? It's hard to say which, but in both instances, the Target locations were decently busy (but not packed). The two closest Wal-Mart stores, by comparison, were incredibly busy. Just a walk through the aisles was enough to confirm this. Either Target was not interested in competing on price with Wal-Mart this holiday season, or it was interested in profit instead of same-store sales figures on a month-to-month basis. But, with the holiday retail shopping season about to wrap up this week and next, what is Target's plan in 2009? The recession will be lingering around quite a while, and shoppers may still continue to prefer Wal-Mart for their purchases as much as possible. Where does that leave Target? On interesting ground.
The rivalry between Wal-Mart and Target -- which hit a high in 2007 -- will see interesting new ground in 2009 as America and many countries around the world grapple with harsh economic realities and consumers find every possible way to maintain their standard of living by searching for bargain prices on products through a huge variety of methods. One method that doesn't seem to take rocket scientists to figure out happens to be just setting foot in a local Wal-Mart Supercenter from what I have seen in recently months. The majority of customers won't care about products being made in China or anything else -- all they'll want is low prices. Until this economic funk has lifted, Wal-Mart will be poised on top of millions of consumer retail minds.
Stay tuned right here this time next week for another edition of the Wal-Mart Weekly. Until then, Merry Christmas and Happy Holidays.
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Reader Comments (Page 1 of 1)
12-22-2008 @ 11:57PM
Irish said...
Funny...I did ALL of my Christmas shopping at Target. So much for the truth of this article. I'd rather pay an extra 5% of goods at Target than give ANY of my money to Wal-mart.
12-23-2008 @ 4:59AM
Jessy Scholl said...
I agree with Irish. Though I did pick up a DVD for my brother at Wal-Mart, I preferred other locations for shopping, and would recommend Target for good deals. While I personally believe that this downturn has gotten almost everyone by surprise, I think that Wal-Mart may suffer by having too little inventory while other stores are raising prices just a bit and are able to secure more of the same inventory.
12-23-2008 @ 5:32AM
Cipher said...
Same here, haven't stepped foot in Wal~Mart in a year. Shopping on the internet is better than shopping at Wal~Mart!... and as far as gas prices, shucks internet shopping saves gas also.
Funny how cheap Chinese goods from Wal~Mart sweatshops no longer interest me. Thanks but no thanks and as far as quality goods, I buy local from mom and pop places at a bit more, but heck they are nice people and are friendly...and farmers markets are ideal for FRESH products, not stuff from other countries..and they are probably healthier since they are fresher. Bye bye Wal~Mart.
12-23-2008 @ 5:59AM
al coholic said...
I too have stopped buying fresh foods at WalMart....sorry, but I just don't trust them foreign farmers.
I do buy DVD's and other items there that don't make sense to buy elsewhere.
When I am in Wal Mart sometimes I get the feeling that I have been transported to the set of the movie Soylent Green and I don't enjoy it when someone I know catches me there.
But I still go. And by the looks of things lately, so are a lot of other people.
12-23-2008 @ 9:53AM
david said...
I find good deals at Walmart, but I hate the check out lines. More often than not it tends to be stupid people in the line not the cashiers. It takes forever to get out of the place. The stupid people are even at the self check machines and it takes forever. Target checkout tends to be faster, perhaps they have less business, i do not know. Have the same problem at Sam's club verses Costco on check out. I would shop at Walmart more if checkout were faster. Separately, I get good deals from Walmart on line occassionally, especially sending flowers.
12-23-2008 @ 10:34AM
BHarrison said...
WalMart . . . otherwise known as "China-Mart" . . . accounts for something like 8% -12% of the TOTAL GROSS EXPORTS of China.
From a practical perspective, we need trade with China . . . 'trade" (mixed financial interests) are the best deterrent to political and military conflicts. It has been "trade" that has, in essence, defeated Communisim in China.
However, there is a "common sense" in maintaining the INTEGRITY of our manufacturing to maintain the indpendence of our nation economically. The politicians and the special interests simply let it all go too far, and to become an inbalanced situation.
As a nation, we have given up the critical core of our manufacturing, and have hocked our economic to China . . . this has become a "lose-lose" situation for the USA which will not easily or quickly be remedied.
As a nation, e have become like those families who purchased homes that we could not afford, and who have lived too far beyond our means via credit card expenitures at substantial CC interests rates. Now we are flat broke, indebted beyond our ability to pay, and unemployed. What else could we expect from having lived in this manner?
The situation has become so bad that even those who lived prudently within their means are now being taxed, and their assets (even cash money in the bank) are being devalued in order to bail out the irresponsible parties. EVERYONE is going to pay for the excesses of those who lived far beyond their legitimate means.
Meanwhile, the CEOs, CFOs, and upper management who created and perpetuated the pyramid and Ponzi schemes that have collapsed our economic system, are STILL receiving GROSSLY EXORBITANT SALARIES, BONUSES, and "OTHER COMPENSATIONS' in spite of their INCOMPETENCES and CORRUPTIONS . . . they are raking in TENS and HUNDREDS of MILLIONS of dollars in spite of what they have done.
It is far past time for substantial adjustments to management compensations, and for holding "managment" PERSONALLY RESPONSIBLE for what they have, and ARE DOING.
It is time to purge our government and the FIs/corporations of these either INCOMPETENT and/or CORRUPT INDIVIDUALS . . . and it is well past time to substantially totally overhaul corporate compensations.
As "EMLPOYEES, the CEOs, CFOs, etc. certainly do not warrant or deserve their exorbitant compensastions. And based on the disasters that they have caused, they ALL should be FIRED forthwith; and replaced by more ethical and capable business leaders.
Are the American people, and the stockholders going to allow these INEPT and/or CORRUPT "leaders" of the past try to handle the recovery efforts . . . that simly is NOT going to work. They are as concerned with covering up their past "mis-deeds" as they are with recovery efforts. We need to purge these people from our government and from businesses . . . they ARE the source of this economic meltdown.
12-23-2008 @ 10:47AM
BHarrison said...
12-22-2008 @ 11:57PM
Irish said...
Funny...I did ALL of my Christmas shopping at Target. So much for the truth of this article. I'd rather pay an extra 5% of goods at Target than give ANY of my money to Wal-mart.
=============
Well, it is not so much "where you shop" as it is "what you buy" . . . just look at the label to wee where the products are made BEFORE you buy them.
What difference is there in a product that is "Made in China" whether it is purchased at WalMart or at Target? Remember when WalMart's founder, Sam Walton, used to use the motto "Made in the USA"? Once he died, all of that changed, didn't it? Behind it all, corporations "exist for the benefit of management who earn their exorbitant compensations from the corporation. They even rob the stock holders, the "true owners" of the corporations, of their legitimate RoI's on their investments. Corporate "excesses and greed" must be dealt with severely in order to "rebalance" our economy.
The TENS and HUNDREDS of MILLIONS of dollars that are being raked off by managment are nothing more than BLATANT FRAUD that is beyond "common sense" for the best interests of society.
The purpose of The Law is to provide for what is in the overall best interests of society as a whole at any given point in time. That is why the interpretations and applications of the Law vary from time to time . . . as even evidenced by the U.S. Supreme Court's decisions historically.
It is past time for white collar crimes to be treated and pursued for being the serious crimes that they are. Unwarrantedly impoverishing old people of their savings, esp. when they can no longer work productively, and impoverishing families is amongst the most heineous crimes of all.
When is the American public and the majority of investors going to say "enough is enough", the system MUST BE CHANGED and ADJUSTED to reasonable levels for corporate compensations and responsibilities?
12-23-2008 @ 11:32PM
Marc said...
Here is only one of the many personal examples of why Target if crashing and burning.
I bought dishes (American Standard or Tradition - or something line of dishes) and I stupidly threw away the receipt and packaging because they seemed perfectly fine after unpacking and light use. The problem: they get scaldingly hot when they are in a microwave for even a couple seconds .... while the food is still room temperature and only the parts touching the dish are actually warm, and they chip if you just look at them just a little too hard. They are a safety hazard and I am surprised that Target hasn't been sued by someone who got seriously hurt. They get so hot that I, and guests who have used them, have dropped them - food and all - a couple inches on the counter ..... which causes them to chip - which no other dish I have - including the $1.50 Wal-Mart dishes - does (I've tested it).
So, given that they have a prominent stamp on the bottom that states that the items are microwave safe and are Target branded dishes. I first got in touch with the store, thinking that it was the best option and that they would simply take the dishes back like a responsible retailer and company and submit some sort of research request to find out why Target is selling hazardous products. Especially considering the big fat Target logo stamped on the bottom of each dish. Unfortunately, I was sorely mistaken and Target apparently prefers selling Target branded hazardous dishes. Check out the online reviews; I am not kidding about the hazard!
To make a long story short; I had to explain, to the general manager of the store, what a responsible and smart manager and company would do; who essentially revealed to me that she has no independent thought process, is overpaid, could be replaced by a creepy animatronic Japanese robot, and that I had to call the central number. So, I call the central number; they take a report; someone gets in touch with me two days later; she is with the third party insurance company, who, again, takes my story and complaint down and tells me all she can do is forward my complaint to the manufacturer. Then, a week later, I get a copy of the letter that was sent to the manufacturer, who was asked to get in touch with me to resolve the issue as soon as possible. I haven't heard from the manufacturer, 12 days after the date of the letter, and Target has now allowed me to get burned literally and figuratively.
All I wanted was to get a refund for the hazardous Target branded products and not get burned anymore.
This abrasive and hostile attitude towards their revenue stream is a systemic and environmental problem that is troublesome and reeks of desperation.
When you don't even stand behind your own branded products you are associating yourself with a bad thing. All the increased profit margins will not make up for a negative perception. Too bad companies don't have the mental capacity to calculate the lost revenue and opportunity cost of burned customers.
When I go to Wal-Mart I get what one should expect; no frills, low prices, and no hostility towards returning something because they get that it will keep me from coming back.
When I think of getting something at Target, I think of how I will pay more, have a better qualitative/diverse/creative selection, but possibly not be able to return something, no matter if it is in original condition. And now, I have have to consider whether Target branded products will harm me or my neices.
12-24-2008 @ 2:39AM
Jessy Scholl said...
David, you are not alone. Wal-mart checkout lanes are the worst in the business. I do make a few food purchases once a week, but never over $20. When I was at my local Supercenter one week, (there are about 25 lanes) I had two items and I believed that all 4-5 lanes were busy and it is tough to get others to run a few customers through the checkout just to get traffic flowing again. I never brought those two items. In contrast, Target is pretty busy and they open more lanes whenever there are people who want to pay.
12-24-2008 @ 10:50AM
kidcat24 said...
These feet don't set anywhere near a Walmart.
12-29-2008 @ 4:55PM
Roudy said...
Well what can I add to all the above comments. #7 and #8 comments seem to be the only fair and balanced ones.As far as the others "let fools be fools as long as they are happy" might apply?
RoudMan