Tale of two Retailers

by Deepak Sharma on Tuesday, December 25, 2007

Weak economy spurred by Subprime crisis has a different meaning for Target and Wal-Mart. While Target is struggling with slipping sales, Wal-Mart has readjusted itself with it's even more discounted merchandise and has seen sales increase. In what is being dubbed as the "trading down within the store", customers are buying lower priced items with more discount.

Rosa Setkiewicz, 50, stopped at the Target in Jersey City, New Jersey, recently to stock up on Arm & Hammer baking soda, Clorox bleach and Downy laundry detergent — "things that are cheap," she said as she loaded the trunk of her Toyota Corolla. "I have cut back a lot on clothing and things that are not necessary."

Bill Dreher, an analyst at Deutsche Bank Securities, dubbed this phenomenon "trading down within the store."

Target executives acknowledge there is some truth to the theory. But the bigger issue, in their view, is that the number of customers walking into Target's stores has dropped. They see that as a sign not of any tactical failure on Target's part, but of rising doubts among consumers about the economy.

"I think people are being more conservative in an environment where they are uncertain," said Susan Kahn, vice president of communications at Target.

Wal-Mart also had not made things easier for Target.

Target also faces a tough adversary this year in Wal-Mart, which has staked its holiday season on heavily promoted discounts. The chain held early-morning, door-buster sales every weekend in November in an effort to steal the thunder from its rivals, which generally waited until the day after Thanksgiving to stage such sales.

Target countered with a display of merchandise priced at $1 in the lobbies of its stores, sending a strong low-price message as consumers walked in.

Nevertheless, Todd Slater, a retail analyst at Lazard, said that "Wal-Mart may be better positioned for an economic downturn than Target, because it is the price leader." He added that "Target is more the fashion leader; it's more upscale."


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