Target Corp.'s holiday-season sales at stores open for at least a year were no higher than in the same period a year earlier, missing the consensus estimate among investors of a 1.5 percent increase.
If this were a one-time event, it could be shrugged off easily. But Target's recent record in the holiday period, the big game of a retailer's season, has become routinely disappointing.
"Historically, you would think about Target as being a good holiday destination," said Sean Naughton, a senior research analyst with Piper Jaffray & Co. "But they really haven't put up strong sales numbers since December of 2006."
The lagging holiday results help to understand why the Minneapolis-based retailer announced plans last week to price match leading online retailers year-round, including Amazon.com, Walmart.com, BestBuy.com and Toysrus.com.
Target's executives -- facing a competitive threat from Amazon.com in price, perceived value and convenience that already has killed other retailers -- are clearly not wringing their hands wondering how to respond.
Target said its December same-store sales in food increased roughly 5 percent, as food retailing is going well. Same-store sales of health and beauty products, along with apparel, were also up, and home products were up slightly.
The problem was in "hardlines," a retailing term that means products like electronics and toys.
Naughton said hardlines make up about 25 percent of sales in a holiday quarter, and 15 or 16 percent of sales the rest of the year. So what Target has been doing well most of the year, growing in areas like grocery, isn't as significant to the total sales picture in the holiday season.
"The good news is that they did not buy [inventory] for a big sales trend, and they were able to maintain the low end of the profit guidance for all of Q4, even with the disappointing months of November and December," Naughton said. "That's good execution."
Mark Miller, an analyst with the Chicago investment firm William Blair & Co., wrote up his thoughts on the product and price dynamic just before Christmas with the title "Merchandise study: Holiday joy at Amazon, less so at Target."
Miller has published an annual study of competitive pricing in 20 general merchandise categories since 2005. Back then, it was to give investors a sense for the pricing strategies from Wal-Mart Stores Inc. and its threat to Target.
As this research has evolved since 2005, Miller said, his thinking has broadened. It's no longer about how competitors respond to Wal-Mart, the world's largest retailer. The gorilla is now Amazon.com.
"The big picture here -- when you think about who wins in retail -- you can take any company, and there are four things that matter most," Miller said. "And the winners all have at least two of them."
Winners can succeed with the broadest selection of attractive items. Or the lowest prices. They could offer the greatest convenience. Or provide the best shopping experience, maybe easy returns or knowledgeable and pleasant sales help. Nordstrom wins on selection and the shopping experience. Wal-Mart wins on selection and price.
If you ran Target, would you try to compete with Amazon on selection? Amazon has millions of items, Miller said, and 150 times the selection of Target and Wal-Mart stores for products in the categories he tracks in his study.
Compete on price? Also not easy. Miller's report found that in the 2012 selling season, Amazon's prices on tool sets were 11 percent cheaper than in Target stores. Baby strollers were 13 percent cheaper. Upright vacuums, 9 percent.
Amazon did not win all the categories against Target on price, but its offerings were generally less expensive across the board, including an assumption of a sales tax of 6.8 percent along with standard shipping.
Miller said the competitive battle of Target vs. Wal-Mart is no longer as relevant to investors, that "there's much bigger product overlap for Target with Amazon than there is for Target with Wal-Mart."
These dynamics are particularly visible during the holidays because Target is losing its edge on pricing on the kinds of products most shopped as gifts, Miller said. Plus, the holidays are when stressed consumers have come to really value clicking and buying as a smart way to save time.
Target declined an opportunity for a discussion, but a spokeswoman said the new price-match policy the company unveiled last week is "really about giving guests what they need to shop with confidence at Target all year long."
Target's 2013 will be dominated by its big expansion into Canada, but analysts who follow Target applaud management for not losing focus on the basics. In addition to the price-matching strategy being extended to year-round, Target's online execution improved significantly in 2012, and its Redcard penetration continues to increase.
It would to be easy to overstate the similarities in strategic issues here, but in looking at Target's battle online, you can't help but be reminded of the recent history of Richfield-based Best Buy Co. Inc.
Target held its own against Wal-Mart stores, matching Wal-Mart across a broad array of products while creating a "cheap chic" style buzz that Wal-Mart even tried to emulate.
But Best Buy did more than hold its own against its biggest competitors. It drove its last big head-to-head competitor, Circuit City, all the way into the ground -- only to be confronted by an increasingly competitive challenge from a Seattle-based e-commerce site.
And Best Buy has yet to come close to fully meeting that challenge.
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