While Walmart (NYSE: WMT) watched their revenues drop for the fifth consecutive period in the second quarter of 2010, big box competitor Target (NYSE: TGT) has been weathering the low-spending storm with good earnings and sales.
Despite a small dip at the beginning of the week, Target shares have stayed strong above $50 per share since announcing their second quarter net earnings of $679 million. Target CEO Gregg Stenhafel credited much of the chain’s performance to unexpectedly strong sales. This week, Target announced a series of plans to bolster their technology business. Target is already holding its own against Wal-Mart’s gadget sales, but now it wants to take on Best Buy (NYSE: BBY).
The first support in Target’s trifecta of new electronics services is dubbed Target Mobile, a partnership with electronics retailer RadioShack (NYSE: RSH). Target will be incorporating mobile phone centers into roughly half of its 1,743 stores by December 2010 and plan to have a full rollout by June 2011. Target customers will be able to purchase both mobile phones and new service plans and have them both activated in the store at the point of sale. Target Mobile will also provide a trade-in program for its line of phones, and an electronics recycling center. They have not, however, announced which mobile phone carriers Target will be partnering with. Best Buy currently offers plans through AT&T (NYSE: T), Sprint Nextel (NYSE: S), and Verizon Wireless (NASDAQ: VZ). All three are currently partners with RadioShack, so it will be safe to assume that Target Mobile will support them as well. RadioShack also has a partnership with T-Mobile, which would provide Target with a slight advantage over Best Buy.
Mobile phones won’t be the only electronics Target will have trade-in programs for as well. While the retailer will also be accepting Apple Inc. (NASDAQ: AAPL) iPod media players for store credit and product upgrades, they are also starting a used video games program. Target tested used game trade-ins and sales in a small number of stores back in 2007, but it’s only now that they’re launching Target Trade-In nationwide. They are undoubtedly hoping to capitalize on the profitable business model that turned GameStop (NYSE: GME) into a multi-billion dollar company. Unlike GameStop, Target’s business will allow video game trade-ins over their website in addition to their brick and mortar stores, taking a page from a Amazon.com Inc. (NASDAQ: AMZN) used game program. Target’s announcement of Target Trade-In was made just hours before Best Buy announced that they would be bringing their used game trade-in and sales business nationwide at the beginning of next week. The final service Target has announced, to bring their technology initiatives perfectly in line with Best Buy’s, is a free tech support hotline for all electronics products sold at Target’s stores. Details on 1-877-myTGTech were scarce in Target’s announcement and the company failed to mention if they would offer in-store support as Best Buy’s GeekSquad does.
Target’s strong sales in a weak consumer environment are a testament to the popularity of their stores. Wal-Mart has historically been unsuccessful in matching Best Buy in terms of selection and service in their electronics department. Considering their current plans, Target stands a good chance of succeeding where Wal-Mart has not. Their new tech initiatives, plus very good analyst outlook for the rest of their fiscal year, means that Target shareholders should feel very confident in their holdings and prospective buyers should take the plunge soon.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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