(Bloomberg)—For years, Target Corp. had bragging rights over Wal-Mart Stores Inc. in at least one area: cachet.
With its sleek products and trendy designers, the company had an edge over Wal-Mart’s bland supercenters, and developed a cult following among customers. Target is No. 20 in the Internet Retailer 2017 Top 500; Wal-Mart is No. 3.
That was then. The tumult in U.S. retail with the rise of digital commerce has upended the industry’s natural pecking order, and one casualty has been Target’s cool factor. By a host of measures—sales, share price, even intellectual property—Wal-Mart is besting Target with cleaner stores, lower prices and a refurbished online strategy.
“This is not your father’s Wal-Mart anymore,” said Chuck Grom, an analyst at Gordon Haskett Research Advisors. As the two retailers prepare to report first-quarter results this week, here’s how they stack up.
The rivals’ divergent paths are perhaps best illustrated by same-store sales, a key industry metric. While Wal-Mart’s so-called “comps” have accelerated in recent quarters, Target’s have fallen into negative territory. And they aren’t likely to improve anytime soon, as the company has forecast a low-single digit decline for the full year.
Wal-Mart’s sales, in contrast, may rise even further if food deflation subsides, according to Grom, since it generates more than half of its sales from the grocery aisles, compared with more than 20% for Target.
Another reason for Target’s struggles is that its shoppers just aren’t buying as much, thanks to the growing appeal of online merchants such as Amazon.com Inc. (No. 1), which has made an aggressive push into apparel, a key category for Target.
Amazon was the most highly regarded womenswear retailer in the U.S. based on affordability and authenticity, according to a survey from British trend tracker WGSN, while Target was eighth.
In the most recent holiday quarter, the value of the average basket of goods at Target declined. Amazon, in the meantime, surpassed all other bricks-and-mortar retailers as the most-popular shopping destination, according to researcher Kantar Retail.
To get shoppers spending more, Target plans to introduce a dozen new exclusive brands, hoping to mimic the success of kids’ clothing line Cat & Jack, whose sales now approach $1 billion. It’s also testing next-day delivery of household staples like detergent and paper towels.
“Target has lower penetration than Wal-Mart, so they have to get more out of their shoppers,” said Leon Nicholas, an analyst at Kantar.
Wal-Mart, meanwhile, is rolling out curbside pickup of online grocery orders to 500 additional U.S. stores this year, eyeing busy suburban moms who don’t want to schlep around a cavernous big-box store. On a recent weekday morning at a Wal-Mart in Rogers, Ark., employees began walking the aisles to prepare online orders at 4 a.m. Outside the store, about 10 parking spaces were dedicated for curbside pickup. The company studied fast-food purveyors like McDonald’s Corp. to figure out the best layout for the pickup area.
“For Wal-Mart, winning online grocery is mission critical,” said Robin Sherk, an analyst at Kantar. “There’s a lot of work to do there, but online grocery is probably working the best for them.”
Target, following the 2013 data breach that exposed personal information of tens of millions of customers, ramped up promotional deals to lure shoppers back in the door. But such deals lead to price tags that swing up and down, confusing shoppers.
Wal-Mart has invested billions to reduce its already low everyday prices to battle the encroachment of German hard-discount chains Aldi and Lidl, with a goal of being 15% cheaper than the competition on 80% of what it sells, according to an internal document obtained by Bloomberg. The result is a widening price gap between Wal-Mart and Target.
Wal-Mart is also winning the intellectual property race. During the past five years, it has taken the lead over Target in patent applications, many focused on web development and easing shoppers’ journey through the store. The company has even filed a patent for in-store drones that would ferry products from the backroom to the sales floor.
Target’s patents tend to deal with products, display units and shelving, according to researcher CB Insights. Over the past year, the company has jettisoned several long-term innovation projects to focus on its core business, and parted ways with its chief innovation and strategy officer and its chief digital officer.
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