Pricing pressure looms for Target as Walmart gets mojo back

Competing with Walmart is nothing new for Target, but what appears to be different this holiday season compared with the last few years is, to borrow a football metaphor, Walmart has eliminated its turnovers and is now showing some signs of momentum.

At least that’s what the retailer told financial analysts gathered in Northwest Arkansas last week for an all-day meeting.

So how concerned should Target be, considering its longstanding goal is to be within a few percentage points of Walmart’s prices. Well, Walmart has produced three consecutive months of positive same-store sales growth, and with third-quarter comps now widely expected to have increased after nine quarters of negative results, the only question in doubt is the magnitude of the increase and how aggressive the company gets with its fourth quarter guidance when it reports third quarter results on Nov. 15.

To make sure it maintains positive comp momentum, Walmart is undertaking an unprecedented marketing campaign this holiday season that has already begun with efforts around a resurrected layaway program. Click here and here to watch the latest TV spots.

According to chief merchandising officer Duncan Mac Naughton, the layaway ads are one component of an aggressive television ad campaign that will see the company double its share of voice this season. In addition to TV, the company plans seven tab advertisements, 10 free-standing inserts, a toy catalog, a holiday entertaining guide and an apparel guide that will be distributed in stores.

“We are very excited and very well prepared,” Mac Naugton said in reference to the holidays. “Our marketing plan for the holidays is quite significant.”

The longer-term challenge facing Target is keeping pace with a company for whom price is the core value proposition. Walmart has vowed to reduce its expense structure by 100 basis points over the next five years on top of a 50 basis point reduction the past two years and to plow the majority of those savings into lower prices.

“We are going to be more productive and invest in price,” Walmart U.S. president and CEO Bill Simon told analysts. “We believe the momentum will build momentum.”

As for prices, Simon said, we are not going to be beat. That’s not who we are.”