Will shoppers soon invent a pseudo-French pronunciation for Wal-Mart (WMT, news, msgs)?
As the recession has dragged on, the big-box retailer has attracted more of the upscale, budget-conscious consumers considered to be the key demographic for rival Target (TGT, news, msgs), aka "Tar-zhay." And Wal-Mart Stores is determined to retain those customers long after the economy recovers.
"Our customer will stay with us when this economy turns around," Wal-Mart CEO Mike Duke said last month. "This is Wal-Mart's time to look to the future and seize the opportunity to truly lead around the world."
Wal-Mart has taken aggressive actions to keep its new customers, some of whom seem straight out of Target's playbook. It has scaled back lesser-known brands in favor of recognizable designer names such as Starter and Norma Kamali. Target, of course, earned its faux French nickname largely by bringing well-known designer names such as Isaac Mizrahi to budget-friendly merchandise.
Wal-Mart has also redesigned stores to feel more like the airy department stores to which many of its new customers are accustomed. The largest retailer in the U.S., Wal-Mart began redesigning its 3,600 stores last fall. This year, it plans to upgrade about 600.
"I think they have done a very good job of introducing some new brands that people would recognize," said Joseph Feldman, a senior retail analyst at Telsey Advisory Group, who noted Wal-Mart's addition of brand-name electronics, apparel and home merchandise. "I am realistic that they are not going to keep everybody who has traded down to them. But I think they are going to keep a lot of them."
The fact that Wal-Mart would emulate a portion of Target's strategy may seem strange. Target, which has not fared as well as Wal-Mart during this economic downtown, had taken flak from a member of its own board for not focusing enough on low prices. Target slashed prices late last year and resolved to expand the number of stores that offer groceries.
Wal-Mart's stock has been roughly flat since the recession started in December 2007. Target stock has declined more than 30% over the same period.
But Wal-Mart isn't exactly copying Target. Its brand-name strategy has a Wal-Mart twist, analysts say. Instead of pursuing fashion-forward brands, Wal-Mart is looking to revitalize classic, recognizable brands as well as offer low prices on the big-name electronics and home appliances sold by competitors. Wal-Mart now carries electronics brands such as Samsung, Dell (DELL, news, msgs), Hewlett-Packard (HPQ, news, msgs) and Apple (AAPL, news, msgs).
"Wal-Mart definitely owns the brand of value," said David Strasser, a retail analyst with Janney Montgomery Scott. "They can hammer home the value message by offering the same brands for less."
So if Wal-Mart is able to keep customers seeking affordable brand-name and designer merchandise, where does that leave Target?
Feldman maintained that it actually leaves Target in a fine position. Though the store may lose some market share to Wal-Mart, its brand is still known for bringing high style to the masses at affordable prices -- much more so than Wal-Mart. As customers regain some of their discretionary income, many will spend more money at Target, he said. Others who have discovered thrift during the recession will also find Target offers a solid value proposition for higher-end consumers.
"I think Target can continue to be a winner in this environment," Feldman said. "It is still going to be a bit more fashion-forward than you would find at Wal-Mart, and that customer will return."