Target thrives in Wal-Mart's long shadow

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Still, as anyone in retail knows, a good reputation can easily be lost if stores grow outdated or messy, or the brand suffers from a fashion miscue.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.”

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