Exceeds Rival in Same-Store Sales In November

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COLUMBUS, OHIO ( -- In mimicking the upscale advertising and merchandising strategy of Target Stores and aggressively discounting on Black Friday, Wal-Mart Stores for the first time in 18 months has bested its rival in same-store sales gains.

In a reveral of last year's holiday strategy, Wal-Mart this year aggressively courted the Black Friday crowds -- and it paid off.
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Wal-Mart reported this morning that November same-store sales rose 4.3% versus Target’s more modest 2.6% rise. Overall sales, however, for Wal-Mart were far greater in the period: $25.8 billion versus Target’s $4.5 billion.

It’s a victorious redux for Wal-Mart after missteps last holiday season, when the retailer literally sat out Black Friday in an attempt to “rationalize” the season, delaying discounts and generally staying above the sales fray.

“Wal-Mart being [Every Day Low Prices], sales are almost immoral to us,” company treasurer Jay Fitzsimmons said in recalling last year’s strategy during the JPMorgan Consumer & Retail Holiday Conference earlier this week. That reluctance to discount led to what Wal-Mart executives have referred to as the “complete disaster” when same-store sales growth was 0.7% last November, way off projections of 2% to 4%, and far lower than Target’s 3.2%.

Playing the game
Wal-Mart stubbornly set out to rectify the mistakes of last year. “We decided no one company, not even Wal-Mart, could rationalize [Black Friday],” Mr. Fitzsimmons told analysts at the conference. ”We were just going to play the game with everyone else and we were going to do it the only way we know how, which is aggressively.”

Play the game it did, slashing prices on everything from cashmere sweaters to laptops, Nintendo GameBoys to portable DVD players. It actually sold 700,000 of the DVD players at a loss, although Mr. Fitzsimmons argued the strategy worked since 45% of electronics sales were for items at regular prices.

Not only did share discounting in merchandising play a critical role, but so did an aggressive and dramatically different ad campaign, analysts said. It was the first for Chief Marketing Officer John Fleming, appointed just eight months ago. That push began Nov. 1, Wal-Mart’s earliest holiday effort ever and five days earlier than Target.

Mr. Fleming has not only continued to refocus Wal-Mart’s advertising away from the once standard in-store shots of smiling employees in frumpy blue smocks, but upped the fashion quotient, including for the first time celebrities like Queen Latifah, Garth Brooks and Jesse McCartney and dropping the do-gooder corporate-image spots.

Gary Drenik, president-CEO of Big Research, said November’s results reflect macroeconomic influences, and that Wal-Mart is benefiting from lower-income shoppers’ fears that higher heating prices will hit later in the season.

But on top of Wal-Mart’s win with value-driven customers this Black Friday, Mr. Drenik said Wal-Mart is also starting to win over upscale shoppers. “Wal-Mart is interacting with everyone’s customer right now. It’s not ‘I’m only a Macy’s shopper.’ No, she also shops at Wal-Mart,” he said. “Wal-Mart is not going to convert all of them, but all they’ve got to do is start converting some of those shoppers just buying bleach and toothpaste at Wal-Mart who say, ‘Wow, that’s a cute little tunic top.’”

Ken Perkins, president of research firm Retail Metrics, warned against taking one month of results as a sign Wal-Mart is beating Target at its own game. The results do point to momentum for Wal-Mart, though, he said.

“If Wal-Mart can overcome the image they have among the upper and middle income consumers -- and that will take time -- Target is going to have its hands full,” Mr. Perkins said. “It’s way too early to tell. But when Wal-Mart sets their mind to something, they tend to be more successful than not.” Mr. Perkins added: “If Wal-Mart beats [Target] twice, though, that will send shudders through the marketplace.”

True test
The true test of Wal-Mart’s upscale push is time. Yet, with less than a year of results to gauge some analysts have already questioned how far the retailer can push change.

“Wal-Mart is dependent on having low prices and that limits the amount of money they can invest in the stores, and very high-end shoppers want to buy high-end products in high-end stores,” said Morningstar analyst Joseph Beaulieu. “There is a natural limit to how high the company can realistically move without alienating their core customers and raising their own costs.”

This limit is why Mr. Beaulieu dismissed Wal-Mart’s win against Target. “My guess is this is just a blip,” he said. “I see this as a month where Wal-Mart pulled out all the stops and had a fairly easy [same-store sales] to beat vs. the prior year.”

That long-term view is echoed by Target spokeswoman Cathy Wright. She suggested a more fair way to parse the confusing holiday sales number is to take a two-year average. That measure gives Target same-store sales of 2.9% vs. 2.6% at Wal-Mart. “Clearly, these results only measure a couple of days and December is a much more important month for all of us,” she added.

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