Schafer: Target, Wal-Mart face similar challenges

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: August 2, 2014 - 5:07 PM
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Brian Cornell is Target’s new CEO, but with Wal-Mart on his résumé, what does that mean for Target?

It took a minute last week to fully grasp that Target is actually going to be led by an executive, Brian Cornell, with Wal-Mart Stores on his résumé.

It’s one thing to go outside for a new leader, but to Wal-Mart?

Cornell has a varied background and wasn’t at Wal-Mart long, but it’s certainly fair to wonder if Target now becomes a little bit more like the world’s biggest retailer.

Let’s hope not. Becoming more like Wal-Mart was already one of Target’s biggest problems.

Target is hardly a twin of Arkansas-based Wal-Mart, of course, but today both companies are struggling in their core retailing operations and for very similar reasons.

The most telling number may be store traffic. Wal-Mart in May reported that traffic declined for the sixth consecutive quarter, this time down 1.4 percent. Meanwhile, Target in its last quarter said traffic in its U.S. segment was down 2.3 percent — also its sixth straight quarter of decline.

It wasn’t that long ago that Wal-Mart was one of the most celebrated companies in America. Minneapolis-based Target had a reputation for managerial excellence, too. Until maybe Costco came along, Target was regarded by investors as the only retailer that could take on Wal-Mart and hold its own.

These two got to the top of their industry in very different ways. From its roots in rural Arkansas, Wal-Mart grew to sales of $345 billion at the eve of the Great Recession, but it sure wasn’t the merchandising savvy driving all that growth. A first time shopper would have to conclude that the VP of merchandising had the same sensibility as the busy homeowner who arranged the wall hooks and storage shelves for all the stuff tossed into the family’s garage.

When it came to distribution, however, Wal-Mart was a company with a rare genius.

What Wal-Mart perfected was a way to get consumer goods from the loading dock of a manufacturer and into a big store cheaper than its competitors, cheaper than anybody else has ever done it.

Target’s plenty skilled at working with suppliers and running lean distribution centers, but it wasn’t going to beat Wal-Mart at that game. Target got its start in a department store company, so it was going to win on merchandising. In its DNA is the department store merchant’s art of delighting and surprising customers with what gets put on display.

Like Wal-Mart, Target also sells the basics, the kind of stuff that consumers go to the store once or twice a week to pick up. When the strategy was really working best for Target, consumers took a list of 12 everyday items to the store, then came out with those 12 items plus fashionable outfits for the kids, a new rug for the bathroom or even a Michael Graves-designed toaster.

Target kept looking for interesting new things to sell, hoping to give customers a reason to leave the deodorant aisle to shop the rest of the store to see what might be interesting.

Target still does some of those things, of course, yet an in-depth analysis of 20 major product categories by Mark Miller of William Blair & Co. showed that as of the fourth quarter of 2013, new items represented 34 percent of the products at Target, down from 56 percent in 2006.

“Target management highlights that new products are less an asset than they used to be,” Miller said. “Is it because Target has lost sight of that? Or has the market shifted?”

Well, one explanation is that great recessions aren’t a time to try a funky new line of kitchen gadgets. The bigger factor, of course, was that Target had committed to selling groceries in a big way, giving more space to consumables at the expense of more fashion-oriented or seasonal items.

In short, a Target store began to look a lot more like a Wal-Mart store.

And coming out of the Great Recession, selling a big assortment of groceries and other everyday products wasn’t going that well for Wal-Mart anymore. Another company with a genius for distribution, Amazon.com, had done Wal-Mart one better, figuring out how to cheaply get stuff from the loading dock of a manufacturer all the way to the consumer’s front step.

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