< Back to View All
Competitive Positioning: Wal-Mart vs. Target
Sunday, March 29, 2009
Principal Strategy & Client Services
Times are topsy-turvy and one of the great reversals can be seen in the world of retail. And a lesson in competitive positioning is left to be learned.
While Wal-Mart, the largest company in the world, has always dwarfed rival Target in size ($406 billion in annual revenue vs. Target's $65 billion), until recently Target had been decisively winning the growth game. From 2003 though 2007, Target's annual same-stores sales growth averaged 4.6%, while Wal-Mart's clocked in at 2.9%.
Over the same period, Target's annual profit growth averaged 16%, while Wal-Mart lagged behind at 10.3%.'Target was frying Wal-Mart's brains out,' says Howard Davidowitz, a national retail investment banking consultant.
At the onset of the
, however, Target and Wal-Mart saw their fortunes flip. Target's same-store sales have fallen for eight straight months; Wal-Mart's have risen for 22 straight months. Target's 2008 same-store sales fell 2.6%, while Wal-Mart's rose 3.3%.
Most recently, Target's February sales dropped 4.1%, while Wal-Mart enjoyed a 5.1% jump. More importantly, in 2008 Target's profits dropped a stunning 22.3%, to $2.2 billion. That figure includes a 40.7% earnings collapse in the fourth quarter. Wal-Mart's 2008 bottom line rose 5.9%, to $13.5 billion. Now, Target is getting trounced.
So, why is Wal-Mart winning and Target losing? The reason is obvious.
Times are so bad, all clothes, even cheap clothes are a luxury. People can forgo buying clothes, even new clothes, but food is not discretionary.
This same lesson was drummed into my head by my immigrant grandfather. During the Great Depression, after trying his hand at construction, railroad work and scrap metal, he got the family into the produce business. His rationale: "Even in bad times, people have to eat." Wal-Mart is positioned for necessities of life; Target is not.
Target devotes some 40% of its shelf space to home and apparel items, which are struggling, while setting aside less than 20% for consumables like food, health items and beauty care. Wal-Mart sets aside 45% of its space for consumables. "Wal-Mart sells what you need to have," says Davidowitz, "as opposed to what you want to have."
Not only does Wal-Mart sell more of the grocery items that you need-the company is the world's largest food retailer-it sells them at better prices. Customers have fled Target because they think of the company as an apparel retailer, and they believe that the groceries they do sell are overpriced.
People think of Target as a cheap chic fashion-forward company, not a necessities company. That's essentially their competitive positioning.
Target's response to this is concerning to us. On Target's fourth quarter earning call, CEO Gregg Steinhafel announced confidently, "We continue to invest in our food offering in recognition of its importance in driving greater frequency, increasing guest loyalty, and making Target a preferred shopping destination."
This positionist sees this as a ghastly mistake. Target is not a grocery destination. Target is a fashion, apparel destination.
The brand can't stand for cheap chic and necessities too. A brand can only stand for
one thing in the mind
. You can't blur your competitive positioning. And you can't change people's minds once they are made up.
In fact, what you often do is reinforce the positioning of your competitor by making its concept more important. As counter-intuitive as it may seem, our recommendation would be for Target to stay the course, wait out the storm of our economic discontent. Keep selling the brand. Change is a wave on the ocean of time.
Responding to the short-term waves that cause agitation and confusion would be a terrible miscalculation--a mistake. Instead of reacting, Target should take a long-range point of view and stick with its basic business.
Changing the direction of a large company is like trying to turn an aircraft carrier. It takes a mile before anything happens. And if it was a wrong turn, getting back on course takes even longer.
As Confucius says, "Man who chase two rabbits catches neither."
Target, I love your cheap chic! Stay the course. You can't have it all.
Lorraine Kessler is Innis Maggiore's Principal Client Services & Positioning Strategist.
< View More Stories
The age of competition: A survival guide i...
Can a position be enhanced in a crisis?
Solving a Whale of a Problem: Is it Time f...
Domino's is facing an identity crisis. Two...
When Brian Williams lies, you pay the pric...
Super Bowl XLIX Special Edition - Inflated...
Pepsi brings the "craft" to cola
Repositioned for Stardom
+ View All
Innis Maggiore Group, Inc.
[View Full Site]
Innis Maggiore, The Agency Inc. © 2015. All Rights Reserved.