Target Corporation

Personality counts: Walmart's frugal, but Target charms

August 19, 2011: 11:15 AM ET

Times are tough for many U.S. retailers. But Target seems to keep customers coming back more than its retail competitor Walmart, in part, because it's so darn likable.

By Shelley DuBois, writer-reporter

FORTUNE -- Those of us familiar with discount shopping know the Target/Walmart duality well.

Target stocks its shelves with low-cost bedspreads, shower curtains, and clothes with bright colors and funky designs. Walmart is for the necessities: cheap Cheerios, laundry detergent, bulk meat, paper plates.

Truth is, Target comes across as more fun, and Walmart as more frugal. And typically, Walmart's all-value, no-nonsense message strikes a chord with consumers during tough economic times. But that hasn't been enough to boost sales growth during this downturn. In fact, Walmart's U.S.  same-store sales have been on a decline for the past nine quarters.

To cope with tighter budgets and increased food prices, Walmart (WMT) customers are buying cheaper brands and smaller packages of products, Walmart CEO Bill Simon said in an earnings call on Tuesday. Unlike Walmart, Target's (TGT) main appeal is a combination of low prices and designer brands. But can a fun brand strategy survive such a gloomy retail outlook?

It goes a long way, apparently. "Target has this aura. It's a wonderful place to go into and shop and everybody loves Target," says Bernard Sosnick, a retail industry analyst with Gilford Securities.

Target can also boast an improvement in its same-store sales in the U.S., while Walmart cannot. Walmart's profits have mostly come from overseas expansion and cost-cutting, not the kind of sales growth on home turf that retail investors like to see.

Not to discount Walmart's profits. On Tuesday, the biggest company in America announced that profits for the second quarter of 2011 increased by 5.7% from last year to $3.8 billion. By comparison, Target's profits increased 3.7% to $704 million during the same time period. More

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