Wal-Mart Throws an Undercut at Target

The company said it is using its site to test trendy products and those that appeal to a younger, wealthier demographic. Among them, this holiday season: the MobiBlu, a tiny cubic $99 MP3 player, a six-megapixel camera dock by Kodak for $199 and a $10,000 diamond ring.

"We have to do some things to get the attention of our customers," said Raul Vazquez, vice president for marketing at Walmart.com. "We want to use the site to shape the perception that customers have of Wal-Mart and the products that Wal-Mart offers."

The company's Web shoppers have incomes estimated at around $65,000, significantly higher than its store customers, he said, and they tend to be female and have more education.

But Target still claims a more upscale customer base, even on its Web site, according to Scarborough Research, a consumer behavior research firm. A recent report showed that nearly half of its shoppers, compared with slightly more than one-third of Wal-Mart's customers, spent $100 or more online during the past year.

Wal-Mart Vice Chairman John Menzer said the company's focus this season has been on value -- offering both low prices and better quality to lure shoppers who may go to Wal-Mart for dirt-cheap prices on laundry detergent but not for a cell phone.

"We believe that a broader base of customers were already in our store," Menzer said. "By giving this broader assortment [of merchandise] and broader price points . . . they're shopping more throughout the store."

At the Wal-Mart in Manassas, beaded sweaters and velvet blazers from the store's new George line were prominently displayed near the front entrance. The collection, which included faux fur capelets for girls and men's pinstripe suits, sells for roughly $5 more than the other lines, said Melson, the manager.

Though Melson said that apparel had been selling well, it was in the electronics and toy departments that the store was clearly locked in battle. The Fujifilm Finepix Z1 5.1 mega-pixel digital camera, for example, was slashed from $348.82 to $284.99 to match a local competitor. In the toy department, the shelves were picked clean after the price of the Hershey S'mores Maker dropped from $14.94 to $11.88 in another price-match.

Target's response has been to "stay the course," according to company spokeswoman Lena Michaud.

"The holiday season is always very competitive," she said. " We feel we will absolutely be competitive with Wal-Mart during the holiday season and during the rest of the year."

But the retailer lost ground last month, when its sales growth trailed Wal-Mart's for the first time in 2 1/2 years. Target posted a 2.6 percent sales growth in November at stores open at least one year. The company had lowered its sales estimate midway through the month following news of Wal-Mart's blockbuster promotions. Wal-Mart reported gains of 3.8 percent, not including its Sam's Club division.

"They saw Wal-Mart coming at them," said Britt Beemer, chairman of the consumer behavior marketing firm America's Research Group, who estimated about a quarter of Target shoppers also frequent Wal-Mart. "I think Target may have to sharpen some of their prices a little bit more."

Target is promising to rebound this month, with forecasts of a solid 4 to 5 percent increase in sales. Meanwhile, Wal-Mart has predicted more moderate December sales growth of 2 to 4 percent.

Klinefelter said that Wal-Mart's aggressive promotion strategy is "not sustainable." To stave off its advances, Target should just work to maintain its fashionable image and merchandise.

"Are they concerned about [Wal-Mart]? Probably not concerned in the near-term," he said. "It has taken Target years and years to establish the brand equity that it currently has. . . . I don't think it's something that can happen overnight for Wal-Mart."

But as Wal-Mart managers at the Manassas store walked past a rack of black sequined handbags and a display where the sold-out Xbox 360 once stood, it was clear that they would try.

As District Manager Jerry Sharp put it: "It gets a little more aggressive every year."