Target Steals “Cheapest” Title From Wal-Mart

by Alyssa Oursler | August 24, 2012 9:23 am

Target Steals “Cheapest” Title From Wal-Mart

The famous Target (NYSE:TGT[1]) vs. Wal-Mart (NYSE:WMT[2]) battle rages on and, this month, a tally goes to the former.

For the first time since October, Target has reclaimed the title of “cheapest” from its fellow big-box retailer, and did so by a relative landslip. The gap was the biggest its been in the two years the difference has been tracked.

And that’s especially important in today’s economy, as cheap is exactly what consumers are looking for. High unemployment coupled with rising gas and food prices mean customers are as cash-conscious as ever. And while retail sales finally improved in July, that was one of the first good signs for the sector in months.

Both companies have thus been trying to lure in those penny-pinching customers with discount offers and slashed prices. The key to Target’s success in the pricing department¬† came from the addition of a grocery component to many stores, which cut into Wal-Mart’s advantage in food prices. The company has also added discount incentives through its REDCard.

Cheap, though, can have its downside. Target’s margins have declined for the last eight quarters thanks in part to such deals.

And generally, Arkansas-based Wal-Mart is still the name that tends to be associated with discount retailers like Costco (NASDAQ:COST[3]) and dollar stores[4] like Dollar Tree (NASDAQ:DLTR[5]) and Family Dollar (NYSE:FDO[6]). The larger company claims its prices remain lower everyday and that Target relies more on seasonal sales.

Target will have to prove that isn’t the case next month when the back-to-school promotion season has come and gone.

Both retailers are also trying to gain an edge in other ways — by squeezing their large stores into cities, for example — especially as competition from online giant Amazon (NASDAQ:AMZN[7]) remains tough.

While Wal-Mart and Target alike have cheaper prices than Amazon, one could argue that you can’t put a price on the convenience the online retailer provides over a brick-and-mortar model.

For now, though, things seem to be going just fine for both companies. Wal-Mart has seen gains of nearly 37% in the past year, while Target shares have climbed around 23%. And maybe with a price gap in its back pocket, Target will be able to climb some more and close that gap as well.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

Endnotes:
  1. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. COST: http://studio-5.financialcontent.com/investplace/quote?Symbol=COST
  4. dollar stores: http://investorplace.com/2012/08/consider-shopping-for-discount-retail-stocks/
  5. DLTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=DLTR
  6. FDO: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDO
  7. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN

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