Is Target on the Right Path?

Discussion
Jun 09, 2011
George Anderson

It wasn’t that long ago that retail industry experts were saying Target needed to do something to stem the numbers of shoppers heading to Walmart to buy everyday staples. Today, the company is being criticized for the low margins associated with getting greater numbers of people to buy food products in its stores.

For a little history, a 2008 report by Citi Investment Research found that 87 percent perceived Walmart to have lower prices than Target. Many consumers were flocking to supercenters that offered food items not available at locations with the bull’s eye logo.

Deborah Weinswig, an analyst at Citi, wrote, "Target is not perceived as a destination for basic needs, which we believe is why the retailer’s traffic trends are weaker than those of Walmart."

More recently, Target has used its P-fresh food initiative to give consumers a reason to shop its stores more frequently. A number of pricing comparison surveys have found Target to be cheaper in many instances than Walmart. The company’s REDcard program, which offers holders a five percent discount on all purchases, has been successful in increasing market baskets, while the rate on delinquencies has steadily dropped.

Despite the steps it has taken, a same-store sales increase of 2.8 percent in May was seen as a disappointment by Wall Street. Some are beginning to question if Target has lost its cheap chic way as consumers fill their baskets with groceries.

Adrianne Shapira, a retail analyst at Goldman Sachs, told The Wall Street Journal, "It is as if they have fallen off people’s shopping list for discretionary products."

Target management and some supporters argue that the company is on the right track and simply operating in a complex retailing environment.

"The stores look good, the merchandise looks good, but a large number of Target shoppers are strapped by higher gas and food prices," David Strasser, retail analyst at Janney Montgomery Scott, told the Journal.

Discussion Questions: What is your assessment of Target at the present time? Has it lost its cheap chic way or do lower sales in areas such as fashion simply reflect a cautious consumer base dealing with higher fuel prices, etc.?

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18 Comments on "Is Target on the Right Path?"


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David Biernbaum
Guest
9 years 10 months ago

Target does a good job separating itself from other mass merchandisers in terms of being trendy and selective for fashions, housewares, cosmetics, etc. However, in my opinion, Target takes a more commoditized approach with groceries, non-foods, and certainly HBA. Instead of carrying only the top IRI ranked UPC codes in most categories, Target needs to take a closer look at more niche, specialty, and destination items. The same customer that buys trendy fashions is also shopping for upscale or premium HBC products, too.

Dick Seesel
Guest
9 years 10 months ago

Many critics of Target are overreacting, first in one direction and then the other, about their “consumables” strategy. Target was criticized for its lack of food and basics, and is now being roasted for having too many groceries. Long-term, this is an appropriate strategy for Target as long as its larger store formats can deliver well-priced and well-edited assortments of fresh and other foods.

The bigger short-term issue at Target is the merchandising of discretionary products. As one analyst pointed out yesterday, Target’s home business (one of its “legacy” businesses) is losing share even though the closing of Linens N’ Things should have helped. And Target’s softlines business (especially women’s) lacks a “core basic” element along with a clear point of view among its private brands.

Can Target be “fixed”? Of course, with some old-fashioned attention to its core assortments at the same time that it continues to build upon its “consumables” strategy.

Anne Howe
Guest
9 years 10 months ago

As far as fashion goes, Target’s merchandising is still the best in the mass class of trade. But I think there is now a perception disconnect in the collective minds of the shoppers because they’ve spent so much time and energy on food. The food merchandising lacks the Target display magic, it’s boring and totally price oriented which results in confusion for the shopper and a clouded vision of what they see when they picture Target.

Target could and should take a much more visceral approach in merchandising food. Why not let some top rated food stylists add some design expertise and create a food experience that matches the merchandising philosophy in the rest of the store?

Dr. Stephen Needel
Guest
9 years 10 months ago

Nobody ever wins trying to be Walmart. They win by being themselves, something different from Walmart. Their “Tarzhay” approach provided that differentiation and as they try to be a grocery store too, and play the lower price game, they lose that differentiation.

Steve Montgomery
Guest
9 years 10 months ago

The reason Target and Walmart got into food is no secret – food is purchased more often the other products that they had traditionally carried. The goal was to drive trips. Everyone thought that was a great idea. Well, now food has become a major part of the mix and carries lower margins so naturally the overall margin has declined. Couple this with the still slow economy and people who previously came to buy both food and other items are more often just buying food. That may be the bad news. It ignores the good news – they are still coming to Target to buy. As this continues to improve that shopping habit will serve Target well.

Ben Ball
Guest
9 years 10 months ago

How ironic that Walmart’s “failed effort to go upscale” drew our collective ire just a year ago as the economy “rebounded”. And today we pillory Target for being successful with its effort to attract more of the commodity shopping basket. Now, if the economy “double dips” this summer, who will we laud? And for what?

Jerome Schindler
Guest
9 years 10 months ago

The problem is you don’t know what their sales and profit would be if they had not added the food products. I suspect sales and profits would have been even lower without the traffic generated by the food offerings. My advice to Target would be to lowball milk, bananas and bread – always.

Gene Detroyer
Guest
9 years 10 months ago
1. Cheap Chic groceries. 2. Don’t try to play Walmart’s game. You will lose. It wasn’t all that long ago that Walmart and Target destroyed Kmart. They destroyed Kmart with positioning. Target took the high road, Walmart took the low and both won. Then the folks at Target started listening to people on Wall Street who look at numbers and don’t understand positioning nor the consumer. Target has only one way to go. They stepped into a battle with Walmart where Target had NO COMPETITIVE ADVANTAGE. In the meantime, they surrendered their exquisite positioning with the consumer. The result was inevitable. Wall Street continues to be misguided. And, retailers continue to listen to the misguidance. 2.8% increase in same store sales in this environment with this population growth is not disappointing, it is extraordinary. What is Wall Street looking for? How much destruction of Target’s profitably do they want to get additional same store sales? Walmart has it right. Recognize retail saturation. Deliver the bottom line and invest in areas where the business can grow.… Read more »
Phil Rubin
Guest
9 years 10 months ago

Target tested and then smartly rolled out its 5% discount benefit tied to its Target cards and while their sales might be disappointing to sell-side analysts on Wall Street, they are a dominant force. They provide a better experience than Walmart and while they have limited upside competing against them, TGT should hold its own with its customer base.

The retail environment is tough especially in the mass categories and while TGT might have limited growth opportunities, suggesting that it is “losing its way” is likely to be proven wrong.

David Livingston
Guest
9 years 10 months ago

I think Target is finally on the right track with groceries. Even the Super Targets are finally kicking in with increased grocery sales. I can confirm their margins are low. Only management really knows if is paying off. Target can’t really reverse itself and raise prices once they matched Walmart. I think they are hoping more conventional stores shut down. I can confirm that when Target does a PFresh, surrounding grocers feel it a lot harder than they expected. In many markets I’ve studied, if there is a PFresh open, there is usually a conventional store within 2 miles on the verge of closing.

Roger Saunders
Guest
9 years 10 months ago
The Goldman Sachs folks might be spending too much time on Wall Street, and not enough “walking about” the country to capture a strong enough view of what the consumer is doing. In checking 12 different retail categories from the May 2011 and May 2010 Consumer Intentions & Actions (CIA) Survey, Target is solidly keeping abreast of customers. Consumers who say they shopped Target “most fften” for these categories stepped up their Target shop in 8, remained flat in 2, and dropped in 2 (bath & bedding and health & beauty are down). Guess what? The twelve month difference in consumer plans to spend on the latter two items in the next 90 days is down a couple of points. The “Red Dot” is bringing them in the store at the pace of the retail industry, or better. The consumer is in a funk over multiple issues — gas, jobs, housing, inflationary threats, what’s going on in Europe, saving enough for the future, commodity costs / rising food fosts, etc. The Goldman team needs to… Read more »
Richard De Santis
Guest
Richard De Santis
9 years 10 months ago

I must disagree with Mr. Strasser’s comments stating that “the stores look good, the merchandise looks good” since most of the Target stores I’ve visited have severe out of stocks especially in HBA, cosmetics and fragrances. Out of stocks always lead to lost sales and customer dissatisfaction. It seems as if JIT is not working as well for Target as compared to Walmart where depth of inventory is never in question.

Doug Stephens
Guest
Doug Stephens
9 years 10 months ago

In my opinion, the term “Cheap Chic” is a hold-over term from the heady days of the credit binge. There’s nothing chic about cheap anymore as consumers struggle to recoup their financial stability and retailers struggle to identify their target consumer. Cheap is cheap and Target’s biggest risk is getting “middled” by competitors willing to sell for less – much less – than they are.

Every retailer has to treat this as a new day with new customers who have entirely new needs. If you look at the speed and flexibility with which Walmart has rolled various programs and changes into the market, it becomes clear that they get it.

I personally like Target but think they may have to dig deeper to find who they need to be in order to remain competitive.

Aaron Spann
Guest
Aaron Spann
9 years 10 months ago

Shopping for “fresh food” at Target just doesn’t work for me. I think it is mainly because I know its all smoke and mirrors. There are no butchers in the meat department (there is no meat department unless you’re in a Super Target and then its still not real). Produce is usually subpar and the selection is thin.

I do like having the non-perishable items available and the prices are usually better than Kroger or Schnucks (in my market area).

Overall it just feels like a “me too” add on that isn’t really great (for me).

Ted Hurlbut
Guest
Ted Hurlbut
9 years 10 months ago
I’ve felt for a while now that Target is trapped between Walmart beneath them and Kohl’s above them. For all of Walmart’s struggles of late, they still dominate on price, and Target’s attempt to compete on categories like grocery runs smack dab into that dominance. On the other end, Kohl’s, in my judgment, offers much greater value, at price points not too far above Target, in apparel and softgoods. Target has responded by focusing on price-point driven basics, but that runs them right back into their Walmart problem. The problem is further compounded by stores with a far larger footprint than is needed, leaving too many of the stores seeming sparse and barren. I think Target has a major long-term challenge in carving out a meaningful space for themselves in the market. Their “cheap chic” positioning pre-recession always implied a level of discretionary spending at the lower end that has been hammered by the recession. It no longer represents a viable strategic positioning for Target, and there’s no clear alternative in sight, given the vise… Read more »
Craig Sundstrom
Guest
9 years 10 months ago

My, my…more Wall Street “experts”–with little/no actual stake in Target–are unhappy their predictions haven’t come true…who’d have thought??? Target should of course ignore them.

That having been said, I’m not sure I see much in the expanded food offering idea. The selection is limited and historically, perishables and soft/hard goods have been poor roommates. How many $200 TV sales will they miss out on because someone doesn’t want to be stuck in checkout behind someone else doing their weekly shopping?

Mark Burr
Guest
9 years 10 months ago

Walmart isn’t Target. Target isn’t Walmart. Disappointment in 2.8% same store sales? There would be dancing in the streets in Bentonville considering their many quarters of down numbers in same store sales.

Target is doing just fine–very well as a matter of fact. Their whole approach–including advertising–is all much better than before.

Wall Street analysts don’t much care for Costco’s approach either. So, what does that tell you?

Kai Clarke
Guest
9 years 10 months ago

Target has to fix their logistics and consumer pricing. Their prices are more expensive on most items. This article is not specific, and when it comes down to the specific grocery cart, Walmart is less. ELP at Walmart is a big winner when it comes to purchasing the basics, including bread, eggs, butter, milk, cheese, meat, etc. Until Target truly understands the grocery consumer, they are shooting at the wrong target.

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