Given Target’s current situation, what recommendations would you make to Steinhafel for his company’s future?
When you hear the term discount retail, two names that usually come to mind: Walmart and Target. The two have been compared so much that the press rarely covers one without at least mentioning the other. The reasons for the comparison are fairly obvious. These corporations are two of the largest discount retailers in the United States. Category for category, they offer very similar merchandise. They tend to build their stores in close proximity to one another, even facing each other across major boulevards. But even with such strong similarities, ask consumers if there’s a difference between the two, and they won’t even hesitate. Walmart is all about low prices; Target is about style and fashion. The “cheap chic” label applied by consumers and the media over the years perfectly captures the long-standing company positioning: “Expect More. Pay Less.” With its numerous designer product lines, Target has been so successful with its brand positioning that for a number of years it has slowly chipped away at Walmart’s massive market share. Granted, the difference in the scale for the two companies has always been huge. Walmart’s most recent annual revenues of $408 billion are more than six times those of Target. But for many years, Target’s business grew at a much faster pace than Walmart’s. In fact, as Walmart’s same-store sales began to lag in the mid- 2000s, the world’s largest retailer unabashedly attempted to become more like Target. It spruced up its store environment, added more fashionable clothing and housewares, and stocked organic and gourmet products in its grocery aisles. Walmart even experimented with luxury brands. After 19 years of promoting the slogan, “Always Low Prices. Always.” Walmart replaced it with the very Target-esque tagline, “Save Money. Live Better.” None of those efforts seemed to speed up Walmart’s revenue growth or slow down Target’s. But oh what a difference a year or two can make. As the global recession began to tighten its grip on the world’s retailers in 2008, the dynamics between the two retail giants reversed almost overnight. As unemployment rose and consumers began pinching their pennies, Walmart’s familiar price “rollbacks” resonated with consumers, while Target’s image of slightly better stuff for slightly higher prices did not. Target’s well-cultivated “upscale discount” image was turning away customers who believed that its fashionable products and trendy advertising meant steeper prices. By mid-2008, Target had experienced three straight quarters of flat same-store sales growth and a slight dip in store traffic. At the same time, Walmart was defying the economic slowdown, posting quarterly increases in same-store sales of close to 5 percent along with substantial jumps in profits.