Is Target (TGT) Missing the Next Retail War?

Implications: As Target shifts its attention to Wal-Mart, the dollar strengthens, oil prices fall, and commoditiy prices decline.  Here is why Target's focus on Wal-Mart may be an expensive distraction.

Analysis: It’s probably the hardest lesson a retailer has to learn.  You can’t be all things to all people.  The second, every dog has its day.  Both apply to here  Target has spent a decade perfecting its “cheap chic” image at the expense of many of its competitors, especially Wal-Mart.  Whether the company can really go heads on against Wal-Mart’s low price position is problematic at best.  But JC Penney, Kohls, and Macys hope they try.  Lost market share would certainly accrue to them if Target’s attempt to compete on low price against Wal-Mart fails which it probably will.  

Realistically, Wal-Mart's size and low cost advantage makes the current economic environment ideal.  Let's face it, it's their time, but that too will pass.  Anyway, Target’s smaller store size and lack of full service grocery department precludes the company from competing against the world’s largest discounter on price alone, not to mention it doesn’t have the low cost expense structure to sustain an attack.  That doesn’t mean Target shouldn’t try to further emphasize its value message.  But it isn’t clear just how they plan to do that and that should scare investors more than a slow growth for several quarters.  

Wal-Mart is the same company that failed to go upscale and lost many of its loyal customers to the likes of Target when it blurred it low cost image.  It will that same company when the economy emerges from the current economic slow down.  Whether consumers will return to their pre-2008 shopping behavior remains to be seen.  But it’s a good bet that they will be different and its that difference Target’s leadership should be focusing on today.  Unfortunately, Target may be fighting a battle that’s already over while ignoring the war that is about to start.