Target has Walmart's price-conscious customer base in its sights, and its aim is improving, analysts say.
Minneapolis-based Target Corp., the nation's third-largest retailer, reported profits up 3.7 percent to $704 million for the quarter ending July 30 over the same quarter last year. Although profits for Wal-Mart Stores Inc. were even better — profits for the quarter were $3.8 billion, up 5.7 percent from a year ago — the company's sales at U.S. stores open for more than a year fell for the ninth consecutive quarter.
"Target has really regained its mojo, and Walmart has lost it," said Craig Johnson, president of Customer Growth Partners, a research firm that covers the retail industry.
"For a number of years going into the recession, Walmart was leading the charge and had Target knocked back on its heels. But for the last year or so, particularly the last few months, Target has been on a roll," he said.
Brian Sozzi, a research analyst at Wall Street Strategies, Inc., thinks the biggest change has been Target's decision to go heavily into groceries, creating the same one-stop destination that has traditionally been dominated by Walmart.
"What we've seen over the past three months is [Target is] ... driving strong sales month over month within their food categories –- almost in excess of 10 percent, which significantly outpaces major grocery chains and anything that Walmart is putting on the board," Sozzi said.
Sozzi said Walmart is very sensitive to the "paycheck cycle." When Walmart's customers get paid on the 1st and 15th of the month, they go to the stores.
"But in those weeks they don't get paid, they are not going to the stores because they continue to be stretched," he said.
Walmart spokesman David Tovar agrees that "the paycheck cycle is about as pronounced as it has ever been.
"With the current state of the economy, we know that our customers are continuing to struggle, and we're working every day to help them get what they want and need at the lowest prices," he said.
Traditionally, the two retailers have zeroed in on slightly different customer bases, Johnson said. Walmart focused on using its once-undisputed position as the price leader to lure in customers making $30,000 to $60,000 a year, while Target went after a customer base with a slightly higher income bracket.
"There's some overlap in the customer base, but the average household income at Target tends to be $10,000 to $15,000 higher," Johnson said.
But Target has made a conscious effort to lower its prices and steal away some of those Walmart loyalists. For the first quarter of 2011, Customer Growth Partners' monthly price tracker showed that for the first time since the survey started five years ago, Target's prices were a bit lower than Walmart's on a basket of 58 items.
Factor in a customer loyalty credit/debit card that Target began offering last year, and the price differential was even higher, the survey showed. In recent months, Walmart has regained its position as price leader, but Target still holds the edge if the 5 percent discount offered to its REDcard holders is factored in.
As Target stocked its shelves with groceries, Walmart's more than 3,800 U.S. stores struggled to add some pizazz to some of its other departments, Johnson said.
"Apparel and home at Walmart has been a real problem, and it really hasn't gotten upgraded yet, whereas Target has been going very, very strongly in apparel and home," he said.
In a sign of just how much the economy is hurting its traditional customer base, Walmart finds itself going head-to-head with Target for middle-income customers just as its lower-income clientele is being lured away by an even cheaper option — the dollar store.
"If you go to the dollar stores, they've done a much better job of offering food to the consumers," Sozzi said, adding that a lot of people who used to shop at Walmart "don't have the money" to shop there anymore.