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BOSTON — Wal-Mart is making merry about its holiday prospects, while rival Target has put out the caution sign.
The different outlooks seem counterintuitive. Wal-Mart customers are particularly vulnerable to high energy costs and the retailer has had operational struggles in its U.S. division. Target has had a stellar year and serves shoppers who are less affected by energy prices, but the company warned that November sales would fall below its 4 to 6 percent projected increase.
Is there something wrong with this picture, or is it a question of controlling what investors anticipate during an uncertain retail period?
“Wal-Mart has taken one approach to managing analysts’ expectations, Target took another,” said Richard Hodos, president of Madison HGCD, a Manhattan-based retail consultant. “The truth is, neither may line up with reality and the whole season may fall somewhere in the middle. There are so many unknowns and an underlying tension out there.”
The war in Iraq, hurricanes in the Gulf Coast and early indications of a housing market cooldown all have contributed to unease about consumer spending — even as same-store sales last month were strong. Some analysts believe, with roller-coaster energy costs, the holiday shopping season is one of the true wildcards in recent years. The National Retail Federation is predicting 5 percent growth this year, compared with 6.7 percent last year.
“We cannot recall the last time Target revised its outlook [to] ‘below plan’ this early in the month,” noted William Blair analyst Mark Miller in a research note. “We understand that the recent sales softness at Target is relatively broad-based across product categories.” Target’s announcement prompted downgrades from Sun Trust Robinson Humphrey and Lazard Capital.
Wal-Mart, however, appears intent on telling an upbeat story.
Chief executive officer Lee Scott set the tone, saying on a recorded earnings call: “I believe we will have a good holiday season.” And chief marketing officer John Fleming during an October presentation touted the “earliest and most aggressive launch in our history.”
Last year, negative press trailed the world’s largest retailer throughout the holiday season after Wal-Mart turned in a disappointing Black Friday. Executives have vowed to be aggressively promotional, innovative with merchandise and more attuned to the look of the stores. The company launched its “Home for the Holidays” ad campaign — featuring Destiny’s Child, among others — two weeks earlier than ever before.
“Wal-Mart is trying to pull every rabbit out of the hat they can to extend the selling season as long as they can,” Hodos said. “They are using celebrities like Gap [did], product design cues from Target and every other possible play to try to attract a more affluent customer.”
Yet some Wal-Mart stores lagged behind its ads and did not appear to get off to a faster-than-usual start.
In both Wal-Mart and Target doors visited by retail consultants and WWD in the first weekend of November, holiday setups were incomplete.
Three days after the ads began running, the entry of a Wal-Mart Supercenter in Salem, N.H., showed no evidence of Christmas except for a “Home for the Holidays” sign on a bin of Darth Vader candy buckets, marked down 75 percent from Halloween.
Two weeks later (about the usual time for Wal-Mart’s setup) the stores appeared to be in better shape. A supercenter in Plymouth, Mass., visited on Nov. 15, had gift cards near the registers, pre-lit artificial trees in the garden center and velvet bows decorating the jewelry cases (the seasonal section, now crammed with flannel snowmen, was still marked “BBQ grills and lawn pruning”).
In early November, Target also was midway through its holiday transformation, although its signs, music and decor were on a larger scale, and had greater visual impact. A 10-foot circular sign reading “Gather Round,” its holiday theme this year, hung over entrances of stores visited by several retail consultants and WWD giving the shopper an immediate cue to begin holiday shopping.
Britt Beemer, founder of consumer research firm America’s Research Group, said two of four Wal-Mart stores and one of three Targets he visited in early November showed progress toward holiday setup, but none was completely ready.
“I was disappointed. In particular, given what they’ve said, I thought Wal-Mart would be further along,” he said. “As big as Wal-Mart and Target are, I think there’s increasingly a gap between what executives are saying and what is actually happening on the store floor.”
The market is “in a malaise — we’re not going to the movies, the President’s approval ratings are the lowest ever and we’re sitting at home worrying about heating bills,” said Eli Portnoy, chief brand strategist for The Portnoy Group, an Orlando, Fla., branding and retail consultancy, who visited a half-dozen Wal-Mart and Target stores in early November. “It’s potentially a very disturbing situation for retailers. They should have gotten off their duffs and produced Christmas in all its full-fledged glory” the first weekend of November.
Despite its optimistic outlook, Wal-Mart “was acting uncertain by not staffing enough to get the seasonal merchandise unpacked,” Portnoy said. If heating bills rise, consumers could freeze spending. “The smart retailers will get the dollars in the door as early as possible while weather is still mild,” he said.
In the Plymouth Wal-Mart Supercenter, which was clean and well-organized, the “Home for the Holidays” signs were relatively small and easy to overlook. Christmas music was audible in only some parts of the store.
Gift suggestions stocked on shelving at the entryway — Cabbage Patch Kids dolls, car seat covers and humidifiers — seemed like reliable sellers rather than innovative ideas. One of the retailer’s biggest statements, at least in Salem, N.H., was toilet seat covers that lit up and played carols when touched.
Wal-Mart appeared to have scaled back its fragrance, personal and manicure care gift sets, which have been placed in towering stacks around the store in recent years.
Apparel looked better. Instead of jingle-bell sweaters, there was a range of sophisticated holiday dressing options, such as silky shirts in plum from George paired with slouchy trousers with metallic or sequin sash belts. Junior line No Boundaries made statements with stretch velvet and sequined cami tops.
Target’s merchandise looked innovative, but also heavily dependent on impulse buys and the whims of affluent shoppers. There was, for example, a whole line of pet accessories, including tiaras and little suede dog coats. The front of the store was devoted to luxury holiday foods, such as gourmet cocoas, in a presentation reminiscent of Williams-Sonoma’s growing food business.
There also appeared to be early purchasing on the company’s limited-edition luxury gifts such as matching beaded gloves, scarves and evening bags for $29.99 to $39.99 apiece.
A rack of limited-edition luxury sweaters with Swarovski crystals also looked picked over by the first weekend of November. The sweaters were touted as cashmere blend, but were actually only 30 percent cashmere and 70 percent cotton. They were priced at $99.99, a price point at which most department stores now offer a 100 percent private label cashmere sweater.
In terms of luxury, Target keeps “pushing the envelope to see what their customer would be interested in,” Portnoy said. “They might be able to pull it off, but they need to remember that even the Bloomingdale’s customer comes in there expecting a bargain.”