Business consultant Markham Lee over at Seeking Alpha wants you to believe that people trading down to Wal-Mart (WMT) are not coming from Target (TGT). Why not? Because Wal-Mart and Target are not direct competitors:
Wal-Mart…leaning towards low income and [Target] leaning towards solidly middle class. Perhaps the easiest way to illustrate the socioeconomic differences is to note that Wal-Mart’s financial services business revolves around check cashing, money transfers and money orders, while Target’s is focused on credit cards.
[Lots of “solidly middle class” folks shop at Wal-Mart, too. And the whole point of “trading down” is to save money–which even solidly middle class folks are eager to do with $4 gas.]
Selling Different Things To Different People:
Target’s strengths are household goods, clothing and electronics, and Wal-Mart’s are groceries, pharmacy and entertainment (includes electronics). In fact recent earnings reports have stated that grocery comprises over 40% of Wal-Mart’s business, with groceries pharmacy and entertainment comprising over 2/3rds.
[Fair enough. But when you’re cutting back, which are you going to eliminate first? Household goods…or food?]
Wal-Mart’s Success Is Not Target’s Failure:
Wal-Mart is benefitting from people going down market from other grocery stores not Target, while the economic slowdown is causing people to cut back on clothing and household good purchases at Target. A slowing economy puts Target’s financial services business at risk as people are less able to pay down their credit cards, while Wal-Mart’s low cost financial services such as check cashing and money transfers are a godsend to their low income customer base.
Well at least Lee agrees Target is exposed and getting hit and that Wal-Mart is better positioned. So we’re not sure why it matters that whether Target’s loss is Wal-Mart’s gain, but so be it.
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