By  on November 21, 2006

Holiday is shaping up as a classic Wal-Mart vs. Target duel, with the world's largest retailer declaring war on prices and its chief rival garbing itself in cheap chic.

Wal-Mart's decision to slash prices on some apparel, which isn't usually featured in its November blitz pricing, puts the onus on Target to respond.

Fashion is typically the Minneapolis retailer's strength, so it's likely to play a pivotal role in whether Target is able to maintain its stellar earnings and gross profit margins. The retailer has an evening collection from Behnaz Sarafpour for Go International on its floor, along with Rafe for Target handbags by Rafe Totengco.

Target is keeping one surprise for its Sunday circular after Thanksgiving: It will unveil limited-time items that Target president Gregg Steinhafel described in the company's third-quarter earnings call Nov. 14 as "collectors' items and unique, nationally branded goods" Target has never before sold.

Wal-Mart is hoping low prices, rather than fancy names or brands, will draw shoppers to its apparel.

John Menzer, Wal-Mart's vice chairman, who oversees all U.S. operations, said on a prerecorded earnings call Nov. 14 that the company has lowered prices on cargo pants and flannel shirts and will offer special deals on trendy Metro 7 to mark the fashion line's first anniversary.

Wal-Mart already has marked down a range of fashions after disappointing women's apparel sales this fall. The company said it was too aggressive in expanding Metro 7 and was overly optimistic about consumers' acceptance of skinny jeans.

About 20 percent of women's apparel was at clearance prices of less than $11 in a store in Danvers, Mass., on Nov. 13. Wide cinch belts, for example, were slashed to $5, from $9.98. A sales associate had just begun tying Smiley-face helium balloons — the retailer's low-price icon — to apparel racks.

"Talk about throwing down the gauntlet," Bear Stearns analyst Christine Augustine said of Wal-Mart's aggressive price cuts, which began in mid-October and include toys, electronics and small appliances. Last week, the retailer offered a laptop computer for $398.

Wal-Mart is under the gun this year, with lackluster comp-store sales gains and negative traffic trends in its U.S. store operations. An aggressive remodeling program in apparel departments contributed to Wal-Mart's poor fashion sales and dampened overall performance, said Wal-Mart president Eduardo Castro Wright. Last year, Wal-Mart blasted out of the starting gate in November, but the retailer lost momentum in December.

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