Much is being made of Wal-Mart missing its earnings while Target beating analyst expectations. First, it is important to note that these results are not yet indicative of a long-term trend. Two, Target did extremely well with its credit card operations (which I do not consider core to its business and should not be included in comparing Wal-Mart's performance, which does not issue its own credit cards). The overall retail sales were still good in the United States though Wal-Mart was hurt in its European operations.
Will you shop at Target or Wal-Mart?
A lot of my audience shops at neither store. They are just too rich to bother with prices. For them, the closest they come to value-shopping is the monthly trip to Costco or BJ's or Sam's Club. But as a management consultant, I can ignore neither Wal-Mart (world's largest retailer and an intriguing company for those of us who make a living by analyzing strategy) and Target (the coolest company among discount retailers).
Is low price alone a winning strategy?
At least that is what you would think if you live in America. We love discounts and sales, even if they are not real. But as Professor Paul Bauer says, there is a lower limit to prices. Wal-Mart has done a remarkable job of driving down prices to a point that when I walk down the aisles of the store and look at the prices, my value chain analysis simply does not add up. In other words, Wal-Mart pushes the limit and gets away with it. I often wonder how anyone can make money serving Wal-Mart.
This low-price strategy does appeal to millions of people worldwide but Target is finding a niche. Target is going after that highly profitable segment that defines value more than just low price.
Target's winning strategy
If we look at the stores like Pier 1, Crate & Barrel, Bath & Body Works, Victoria's Secret, Bombay Stores, etc. it is easy to see why these stores are not for everyone. The prices are beyond reach for many consumers and while their "luxury for the masses" approach works quite effectively, a trip to Target creates far more value for them than a trip to the mall.
Target's range of product is so "cool," that you can buy products at incredibly low prices in stores that simply do not have that Wal-Mart or KMart look, and feel good about it.
Transformation of the retail sector
And I believe Target's business model is new business model in the retail sector. Another company that is going to be a serious threat to some of the apparel retailers is Sweden based retailer H&M. From SEK 36 billion in 1999-2000, the sales have skyrocketed to SEK 63 billion last year, mainly as a result of new stores opened worldwide, including the United States.
What does it mean for you?
Linspire laptop
Links mentioned: Wal-Mart Target Pier 1
Will you shop at Target or Wal-Mart?
A lot of my audience shops at neither store. They are just too rich to bother with prices. For them, the closest they come to value-shopping is the monthly trip to Costco or BJ's or Sam's Club. But as a management consultant, I can ignore neither Wal-Mart (world's largest retailer and an intriguing company for those of us who make a living by analyzing strategy) and Target (the coolest company among discount retailers).
Is low price alone a winning strategy?
At least that is what you would think if you live in America. We love discounts and sales, even if they are not real. But as Professor Paul Bauer says, there is a lower limit to prices. Wal-Mart has done a remarkable job of driving down prices to a point that when I walk down the aisles of the store and look at the prices, my value chain analysis simply does not add up. In other words, Wal-Mart pushes the limit and gets away with it. I often wonder how anyone can make money serving Wal-Mart.
This low-price strategy does appeal to millions of people worldwide but Target is finding a niche. Target is going after that highly profitable segment that defines value more than just low price.
Target's winning strategy
If we look at the stores like Pier 1, Crate & Barrel, Bath & Body Works, Victoria's Secret, Bombay Stores, etc. it is easy to see why these stores are not for everyone. The prices are beyond reach for many consumers and while their "luxury for the masses" approach works quite effectively, a trip to Target creates far more value for them than a trip to the mall.
Target's range of product is so "cool," that you can buy products at incredibly low prices in stores that simply do not have that Wal-Mart or KMart look, and feel good about it.
Transformation of the retail sector
And I believe Target's business model is new business model in the retail sector. Another company that is going to be a serious threat to some of the apparel retailers is Sweden based retailer H&M. From SEK 36 billion in 1999-2000, the sales have skyrocketed to SEK 63 billion last year, mainly as a result of new stores opened worldwide, including the United States.
What does it mean for you?
- A low price strategy is not a winning long-term strategy if there is no other differentiation and if you lack scale. Wal-Mart can do it simply because of its scale. Don't try this if you are not number one or two in your space.
- Conduct an assessment of your customer base to find out how they define value. It is not always price. Often it is something like customer service that many companies often ignore altogether.
- Product attributes and quality are as important as price. That is exactly what Target provides.
Linspire laptop
Links mentioned: Wal-Mart Target Pier 1