Target beats Wal-Mart in widest gap in 2 years

Summer sales help No. 2 discounter

Bloomberg NewsAugust 23, 2012 

Target is living up to the second half of its “Expect more. Pay less.” slogan by winning the latest round in its pricing battle Wal-Mart Stores.

Target this month had lower prices than Wal-Mart for the first time since October, according to research conducted by Bloomberg Industries. The Minneapolis-based chain also led by its widest margin since the monthly study began two years ago. The study examined the gap in average price across a basket of 150 similar items at stores within five miles of one another.

The discounters are fighting for customers who are still dealing with high unemployment and slow wage growth. The chains also are facing more competition from online retailers such as Amazon.com, which offers free shipping and is adding distribution centers to speed up delivery time.

Consumers who shop at discount chains “are trying to stretch their budgetary dollars as much as possible,” Jennifer Bartashus, an analyst for Bloomberg Industries in Skillman, N.J., said. “They will be driven to whatever store offers the better value.”

The second-largest U.S. discounter won this month by cutting into Wal-Mart’s lead in food prices. Bentonville, Ark.-based Wal-Mart’s advantage in groceries fell to 1.35 percentage points from 4.5 percentage points in July. Target’s improvement in food may have come because of more promotions tied to back-to-school shopping, Bartashus said.

Wal-Mart also lost ground on food prices to Bottom Dollar, a grocery store chain owned by Delhaize Group, according to a separate Bloomberg Industries study released Aug. 20.

Wal-Mart is still the price leader, and if a rival shows lower prices, it is either because of a temporary sale or promotion, Deisha Galberth Barnett, a company spokeswoman, said.

“Anytime there’s an environment with high-low retailers, pricing surveys will reflect some differences,” Galberth Barnett said in an emailed statement. “Walmart is delivering everyday low prices – not pricing gimmicks – every day, 365 days per year, not just during a single week or during a particular season. Our customers don’t have to wait for a sale or look for an ad.”

Wal-Mart also has its Ad Match Guarantee, through which it will match local competitors’ advertised prices on identical products, Galberth Barnett said.

Wal-Mart, which has “Save money. Live better.” in its logo, has focused on cutting prices and adding items to bring consumers back to its stores after same-store sales in the United States, its largest market, declined for more than two years. Revenue by that measure has since rebounded with gains in four straight quarters for the world’s largest retailer.

“Wal-Mart has been rolling out 88-cent deals and very publicly communicating its ad-match campaign, so it’s a real blow that Target has managed to trump them on price,” Natalie Berg, an analyst with London research firm Planet Retail, said in an email. “When it comes to seasonal, nobody does it better than Target. This year, they’ve gone in all guns blazing, getting more aggressive on price and creating a far more compelling in-store environment than Wal-Mart.”

The price leadership by Target is a surprise because the retailer doesn’t try to beat Wal-Mart on price across the entire store, said Patrick McKeever, managing director with MKM Partners in Stamford, Conn. The two retailers will battle on key categories, he said.

“Target is very focused on being priced on par with Wal- Mart, especially in things like consumables and cleaning products,” McKeever said in a phone interview. “They try to be competitive with Wal-Mart on items that are the most visible.”

While losing to Target, Wal-Mart still can claim an advantage over Amazon, according to a study conducted in June by Kantar Retail, a London-based research firm. It compared prices on a range of 36 items and found that on average goods are 20 percent more expensive at Amazon than at Wal-Mart.

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