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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.
“Apparel is where Wal-Mart is being careful,” wrote Bernard Sands retail analyst Richard Hastings in a research note. “Instead, Wal-Mart is going for the holiday jugular, going right after toys and electronics and small appliances, items where they can strike back against Kohl’s, who has hurt them badly on apparel, and that does a significant business in small appliances. But more serious is the potential impact of this upon seasonal planning and promotions at Target.”
The retailer hopes a return to proven tactics will bring a cheery finish to a tough year. Television advertisements will trumpet “the Wal-Mart price,” vice president and chief marketing officer John Fleming said Wednesday during a presentation sponsored by Morgan Stanley.
“We’re going to make price matter,” he continued. “We didn’t have that message built into our program last year.”
The Bentonville, Ark., retailer’s Smiley-face low-price icon, which has returned to in-store signs after being downplayed, “connects very deeply” with loyal customers, said Fleming. The discounter’s “loyalist” shopper spends 42 percent of his discretionary income at Wal-Mart, said Fleming.
Wal-Mart has “flip-flopped its message,” Augustine said. “They were focused on lifestyle and now it’s price, price, price. They are single-minded on price and, in my opinion, it’s the right quarter to have that tactic.”
Wal-Mart’s holiday ads, which Fleming previewed for analysts, focus on family interaction, convenience and specific items such as digital cameras and satin pajamas. The retailer is again emphasizing the word “Christmas” in its stores and marketing efforts, a change it attributed to customer preference over the more universal “happy holidays” it used last year.
Citing 2005’s celebrity-driven ad campaign, Fleming described the latest homey spots as “more authentic in tone than Beyoncé [Knowles] and Garth [Brooks] talking about going home for the holiday.”
Fleming said the retailer hopes to keep sales momentum by adding three more circulars, for a total of eight, during the holidays.
Fleming became Wal-Mart’s first chief marketing officer 18 months ago after leading walmart.com. He had steered Wal-Mart away from core price messages such as Smiley and rollbacks. The return of both suggest an adjustment in the retailer’s marketing strategy.
Target is hoping its focus on style through design exclusives will protect it from Wal-Mart’s price onslaught. The retailer faces difficult year-over-year comparisons in women’s apparel, which has been a sales powerhouse the past two years.
Steinhafel described the women’s business as “decent” in the third quarter, but said men’s wear and children’s wear were stronger performers.
Rafe for Target handbags have been “very, very well received from our guests,” Steinhafel said. The company is working on designer collaboration for accessories, he said, without divulging a designer or time frame. He said the Go International program, which offers collections for 90 days only, would be the model for accessories launches.
Steinhafel said the company’s four Go International projects this year — Luella Bartley, Tara Jarmon, Paul & Joe and Behnaz Sarafpour — have shown that offering a few pieces of many styles per store works best, as does adding new items every four to six weeks.
“We’ve evolved that particular set of tactics and we’ve seen results improve as we’ve gone throughout the last year,” Steinhafel said.
Target has tapped Proenza Schouler and reportedly Paco Rabanne’s Patrick Robinson for future Go International collections. The retailer declined to comment.
A check of Target and Wal-Mart stores in Danvers, about 20 miles north of Boston, last week brought home the retailers’ differing approaches. Neither merchant had put out full holiday assortments.
Target’s storefront matched its advertising and catalogue, with giant, lacy snowflakes and trees designed by Dutch designer Tord Boontje hanging from the ceiling.
With its decor, said Doug Hope, vice president of Global Shop, a retail consultant specializing in point-of-sale and in-store visuals, Target is doing more than just making its stores look pretty.
“It’s very important to give the consumer connectivity with the media effort that brought them to the store in the first place,” he said. “You reinforce the message and deliver on the brand promise.”
Inside, Target stressed convenience with a display of gifts in cherry red boxes labeled “Off the Shelf and Under the Tree.”
Limited-edition leather gloves and beaded velvet evening purses, similar to ones the retailer offered last year, were already selling, from the look of a picked-over rack.
Wal-Mart’s entry was a bunker of consumables, such as cases of energy drink Red Bull, plastered with large “Rollback” signs. A display of gift cards was Wal-Mart’s only seasonable message at front.
In fashion, both retailers emphasized longer tops and layering, but had only a few skinny jeans styles.
“I think the proper position is to wait a little bit,” Augustine said of skinny-leg jeans. “I think it’s been difficult even for high-end retailers to get customers adapted to the inverted triangle silhouette,” which features boxy tops over skinny-leg bottoms.
Augustine said she’ll be watching December closely.
“Last year, it was a missed opportunity for both Wal-Mart and Target,” she said. “Target got cherry-picked [for bargains] off its circular, but they recovered later in the month and into January.”