By Ylan Q. Mui
Washington Post Staff Writer
Friday, December 16, 2005
Sales tags touting deep price cuts were flying like battle flags this week in the electronics department of Wal-Mart in Manassas. Twice each week, about a dozen employees sneak into enemy territory -- Target is just two miles away -- to scope out prices. When they return, the store starts discounting, undercutting the competition by 5 percent or more, manager Beth Melson said.
"We can stay the lowest price in the market to draw shoppers into our store," she said. "They know they can come here and get the lowest price."
Electronics make up the newest battleground in Wal-Mart's fight for customers this holiday season. And with just over a week left before Christmas, the company is in full assault mode, from Manassas to headquarters in Bentonville, Ark.
The catalyst can be summed up in one word: Target.
While it certainly isn't Wal-Mart's only competitor, Target Corp. has made a splash with its strong growth. Sales at stores open at least one year, a key performance measure in retail, were up 5.9 percent in the third quarter. Wal-Mart Stores Inc., meanwhile, plodded along at 3.8 percent growth.
Target has become known for trendy apparel and home furnishings through partnerships with high-end designers like Michael Graves and Isaac Mizrahi. This season, it rolled out a special collection by Italian design house Fiorucci and "vintage modern" holiday decor by Thomas O'Brien.
That has helped Target win an enviable customer base with an average household income of about $60,000, compared with Wal-Mart's average of $40,000 to $45,000, according to Jeffrey P. Klinefelter, an analyst with Piper Jaffray & Co., an investment company. Target shoppers are also less affected by swings in gas and heating prices, which industry analysts worry could slow holiday shopping.
Now, Wal-Mart has decided it wants a piece of that action.
"They are on a tear," said Wendy Liebmann of WSL Strategic Retail, a consulting firm. "I think they will continue to be very, very aggressive through the season."
The stakes in the holiday shopping wars are particularly high for Wal-Mart. The world's largest retailer has been eager to reestablish its dominance after stumbling last year by failing to mark down merchandise sufficiently. In addition, this Christmas is the first big test of how well the company can sell higher-priced goods -- like laptops and men's pinstripe suits -- that it hopes will upgrade its image.
That has given birth to a marketing strategy that combines the cutthroat with the chic. Wal-Mart preempted competitors when it unleashed its holiday marketing campaign in November a week earlier than last year. Advertisements for the first time featured celebrities like the bootylicious girl group Destiny's Child and tweener heartthrob Jesse McCartney.
The day after Thanksgiving, Wal-Mart offered blockbuster discounts that had customers lining up for hours to be first inside when stores opened at 5 a.m. The store has also been touting exclusives on its Web site.
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."