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Target thrives in Wal-Mart's long shadow

With its iconic red-and-white logo and snappy marketing, Target Corp. has managed to cultivate a reputation as a big-box discounter offering both affordability and style, while avoiding many of the controversies befalling its larger competitor. By's Allison Linn
A young boy leaps over pillars followed by his mother outside a Target store, Wednesday, June 13, 2007, in Philadelphia. Despite rising gasoline prices the Commerce Department reported that retail sales surged by 1.4 percent last month.Rusty Kennedy / AP

When Steve Zmak learned that a Wal-Mart was planned for his California seaside town, he quickly got involved in a campaign aimed at keeping the world’s largest retailer from finding a home there.

Among the reasons Zmak didn’t think Wal-Mart should come to Marina, Calif.: a Target already was planned nearby, and another one — where Zmak regularly shops — was just a few miles away in a neighboring town.

Wal-Mart did eventually make it to Marina. But the episode illustrates both the challenges Wal-Mart faces and the opportunity Target enjoys. When Wal-Mart’s detractors talk about how much they dislike the world’s largest retailer, they often also mention their affinity for Target, one of Wal-Mart’s chief competitors.

With its iconic red-and-white logo and snappy marketing, Target Corp. has managed to cultivate a reputation as a big-box discounter offering both affordability and style, while avoiding many of the controversies befalling its larger competitor.

The Minneapolis-based company is generally enjoying favorable sales increases at stores open at least a year, a key measure for retailing health. Its stock price is up around 20 percent over the past two years.

Riding on its success, Target has announced plans to increase its store count by one-third, to about 2,000 stores in 2011 from about 1,500 currently. Within 15 years, the company believes there could be room for as many as 3,000 Targets across the United States.

Wal-Mart Stores Inc., on the other hand, is facing a barrage of attackers who argue that the world’s largest discounter needs to treat workers better and make other major changes. The Bentonville, Ark.-based retailer also is dealing with a stagnant stock price and recently decided to scale back expansion plans to focus on improving results at existing stores.

Even as it grows, Target will still likely be dwarfed by Wal-Mart, which currently operates more than 4,000 Wal-Mart and Sam’s Club locations in the U.S. and plans to continue expanding, albeit at a slower pace than previously forecast.

Nevertheless, Target's growth carries with it the risk that the company will become, no pun intended, a target of some of the same problems that are currently dogging Wal-Mart. Other companies with significant brand cachet, such as Krispy Kreme Doughnuts Inc., have seen their fortunes fall rapidly after periods of strong growth.

Target already has faced pockets of dissent. Community members in towns including Davis, Calif., have objected to its expansion plans, and an environmental group recently took the company to task for stocking products that include potentially toxic polyvinyl chloride, or PVCs. But in general, the company has avoided the type of widespread attacks Wal-Mart faces, which include two union-backed opposition groups and many communities seeking to keep Wal-Mart out of their back yards. spokesman Chris Kofinis said his group has focused its criticisms on Wal-Mart because, as the nation’s largest retailer and biggest company by revenue, the discounter provides the biggest opportunity to force broad economic change. would like to see Wal-Mart pay workers better, offer more affordable healthcare and make other changes.

“The belief is if you make Wal-Mart a more responsible employer, everybody else will get the message,” Kofinis said.

Still, Kofinis concedes that he doesn’t have much information about compensation at Target, where he said he shops occasionally.

“Is Target better than Wal-Mart? The truth is we don’t know,” he said.

Patricia Edwards, a portfolio manager with who owns shares in both Target and Wal-Mart,  thinks one reason Target hasn’t suffered as many attacks on its reputation as Wal-Mart is because of its remarkable success at marketing itself as a preferred place to shop.

“Being associated with Target, it makes you hip, it makes you cool,” said Edwards, who is with investment managers Wentworth, Hauser and Violich.

Analysts say Target also appeals to shoppers with more disposable income, who may be turned off by Wal-Mart’s intensely budget-conscious feel. Edwards was reminded of that recently when a client of her firm, with millions of dollars to invest, lamented Wal-Mart’s attempt to move into a location near her, and then in the next breath boasted about a fashionable — and affordable — find at Target.

“When people can, they like to shop at stores that they would like to be associated with,” Edwards said.

Target also has other advantages over Wal-Mart, Edwards said, including exceptional marketing and a reputation for clean, well-kept, organized stores. Wal-Mart has tried to address some of those issues with extensive remodels that have included new signs and revamped restrooms, among other changes. It also has embarked on an aggressive public relations campaign aimed at touting its health-care offerings and other worker benefits.

Still, as anyone in retail knows, a good reputation can easily be lost if stores grow outdated or messy, or the brand suffers from a fashion miscue. Edwards said she would gladly see the company trade faster growth in favor of maintaining its image as a clean, fun place to shop.

As it grows, Target spokeswoman Lena Michaud said the company thinks its biggest challenge will be in finding enough qualified employees for new stores. Target currently employs about 352,000 people, compared with Wal-Mart’s approximately 1.3 million U.S. employees.

At this point, Michaud said executives are looking mainly at opening new stores to fill pockets where they don't believe the retailer has enough presence, including a mixture of urban and suburban locations. Its larger SuperTargets, which feature groceries and compete more directly with Wal-Mart’s Supercenters, have in recent years made up about 25 percent of new stores.

Target enjoys other advantages by not being the market’s biggest player. Right now, analyst Edward Weller with ThinkEquity Partners notes, one of Target’s biggest strengths is that it is a less complicated operation than Wal-Mart.

“They run smaller stores that are less complex. They’re not trying to be all things to all people. And it gives them an opportunity to be more focused,” Weller said.

Weller also notes that Target has gone through some rough patches in the past, and that experience could help the company weather any storms that might arise from further expansion. It also has been able to watch Wal-Mart weather its attackers, providing insight should it face similar problems.

Right now, Target may even be benefiting from Wal-Mart’s woes. But, Weller notes, the tables could turn if Wal-Mart is able to effectively fight its detractors.

“It’s always flattering to stand next to somebody that’s even crazier than you are,” Weller said. “In that sense, if Wal-Mart cleans up its act, the unions will have somebody else to go after.”