Target maintains fewer physical retail stores than Walmart, actually much fewer, as in approximately 1800 vs 10,000 locations, however, it doesn’t change the fact that Target is more profitable overall. From a financial perspective, Target is slightly more profitable in gross profit margin, even though Walmart is 5 times larger, and has higher asset and inventory turnover (Mirzayev, 2015).
But why and, more importantly, how is target producing a higher profit margin? Target Corporation differentiates itself from its main competitor, Walmart, in a number of ways. Branding is a the core of Target’s efforts, with a target audience of more ‘unique’ buyers, college graduates, and women, the brand is targeting a more educated demographic and correspondingly a demographic with larger bank accounts (Alyssa, 2014). And while Walmart’s products focus on grocery and home goods, Target is taking it a step further with home decor and designer clothing (Alyssa, 2014).
One-third of Target’s revenue is generated through their babies, kids, style, and wellness departments (Berfield, 2016). Therefore, it seems an easy decision to use its branding, research, and advertising dollars to revitalize their children’s line of clothing, into what is now Cat & Jack. Not only has their research and strong branding of this line increased sales, it has differentiated Target from Wal-mart specifically in the fashion industry, and has also set them apart from many other children’s clothing lines, such as The Children’s Place, Kohl’s, and Old Navy (Berfield, 2016).
Berfield and Pettypiece say in Bloomberg Businessweek, “Target has thrown money, time, and reams of research into tutu dresses and dancing robot shirts because the company’s future is supposed to look the way Cat & Jack is supposed to look: optimistic, modern, wholesome, inclusive, fun. That’s a lot like what people thought of Target before it lost its cool” (2016).
Optimistic, modern, wholesome, and fun are all that Target used as their branding strategy in the past and reusing it on a narrower target audience was a genius strategy to revitalize and differentiate their brand again.
Wal-mart, however, hasn’t stopped differentiating themselves in order to stay relevant through Walmart app, Walmart Pay and more flexible fulfillment services that mimic the efforts of Amazon.com (Williams, 2016). However, Walmart just recently receded on an effort to reach more urban areas through Walmart Express locations. And it looks like Target is going to take off right where Walmart left, in an effort to reach their urban upper middle-class audiences. Double the number ‘Flexible-format’ stores are planned to open in 2017 than the previous year, condensing their square footage even more from the first City Target launched in 2012 (Dodson, 2017). The first City stores were still too big of a footprint and thus the flex format was created to be even smaller, about 1/10th of the size and to cater to specific neighborhoods (Dodson, 2017). Although the Target Corporation is saying that each store will have specialty chosen items for the areas demographic it’s not surprising that the first Manhattan Target emphasizes apparel, toddler, and baby sections, just what their latest branding efforts support (Dodson, 2017). It seems their brand differentiation will set them apart from their competitors but not from their own big box stores in the suburbs, which is exactly the type of branding they want.
Alyssa. (2014). BRAND BATTLES: TARGET VS. WALMART. Retrieved from http://www.pragermicrosystems.com/blog/marketing/brand-battles-target-vs-walmart/.
Berfield, S., & Pettypiece, S. (2016). FaSHION IS HARD. (cover story). Bloomberg Businessweek, (4482), 34-39.
Dodson, C. (2017). OUT OF THE BIG BOX. Fast Company, (213), 20-22.
Mirzayev, CFA, FRM, E. (2015) Target Vs. Walmart: Who’s Winning The Big Box War? Retrieved from http://www.investopedia.com/articles/active-trading/070715/target-vs-walmart-whos-winning-big-box-war.asp.
Williams, G. (2016). Big Box Throw Down: Target Vs. Walmart. Retrieved from https://www.forbes.com/sites/gracelwilliams/2016/05/21/big-box-throw-down-target-vs-walmart/#7b52372f6b15.