Look Who’s Stalking Wal-Mart

This Week BusinessWeek’s Michelle Conlin reports on Target, and how it changed strategy to survive the recession.

I’m sure we’ve all heard Target’s tag line, “Expect More, Pay Less”. In the past ten years, I’ve enjoyed looking at the innovative pop-art advertising with “fabulous people, wearing fabulous clothes, doing fabulous things”. Seems like a great way to run a store. Target was a leader in recruiting high-fashion designers to bring their wares down to the affordability level of everyday people. That’s how they came up with the faux-name “Tarzhay” indicating an exclusive boutique.

Then the recession hit. They still use their expression Expect More, Pay Less”, but BW points out they now emphasize the second part of the expression, not the first part. BW points out Wal-Mart may have been trying to follow Target’s style influence before, but now, Target is following Wal-Mart, through emphasizing low prices.

Target had a new CEO in May, 2008, Gregg Steinhafel. Steinhafel has a different management style that the previous CEO, says BW, but he didn’t bring much change in substance. The company did not expect him to bring about changes in strategy. However, the recession hit, and like so many other companies, Target was suddenly in a game of adapt or perish.

When the economy plummeted in Fall 2008, Wal-Mart was in prime territory with its discounts. Target’s stock price went south in the latter part of 2008, and needed to act fast. But, chasing price can be tricky for a retailer. When prices fall the customer is happier, but profits are smaller. The retailer can’t just keep lowering prices across the board as a strategy; no profits mean the end of the business. There needs to be a value proposition other than price to keep the business afloat and keep the customers walking in the door.

But somehow the beautiful people in the Target ads weren’t enough.

Target has identified their “target” shopper (forgive the pun), who is a working mother in her 40s. BW reports Target used to see this woman as a fashionista, now she is a “frugalista”. But somehow in real life she perceives Target to be more expensive than Wal-Mart. Target is fighting this perception, and in its new strategy, it emphasizes price. Target is now providing even more affordable fashions, and doesn’t miss an opportunity to show savings for the customer.

Groceries are an increasingly important part of this strategy. The grocery business is not easy: spoilage and razor-thin margins make it difficult for anyone and Target is no exception. But everyone needs groceries, certainly Target’s “target” shopper, and groceries bring people in the door. Dry goods which don’t spoil have been in Target’s stores for years now. One can sell boxes of granola bars as easily as a box of soap. When Target executive realized the average shopper was going to the grocery store twice a week and to Target only three times a month, they decided to overcome the obstacles to offer fresh and frozen items as part of new food marts within existing stores.

Target had a successful introduction of grocery items in Philadelphia, and results are good enough to implement the concept in 350 more stores in 2010. The only thing Target executives regret is not acting more quickly. Now we will hear more about grocery within Target, and more price messages in 2010; less of the fabulous people.

Is this the Target of the future? BW thinks the new price message at Target is “less like a strategy than a tactic to buy time”. One successful brander from an independent company believes Target has to “reinvent itself”. What will that mean? Sounds like if you want a discount, run out to Target now, and we’ll see about the future. BW ends the article with “The world doesn’t need a second Wal-Mart”.