KSTHANE

Kohl's: The New Target?

It's not just Wal-Mart's value proposition that is hurting Target, it's Wal-Mart's new focus on apparel that is hurting Target. Wal-Mart has started merchandising up while Target has had to merchandise down (on price).

Suddenly the customers that used to shop at Target are walking into a newly remodeled Wal-Mart store that has beautiful, clean floors, no blue vested employees, a softer blue hue and more feminine signage and a completely revamped apparel assortment that actually comes from brands they've heard of....oh, and it's cheaper too. Wal-Mart has moved up the ladder while Target is trying to climb down it.

That doesn't mean Target isn't worthy of investment though. Their P-fresh stores concept really sounds like it can work and the company can get unit growth in smaller markets with them without sacrificing too much ROIC.

Kohl's has the same story it's had all along...they're not taking share from Target, they're taking it from mall based department stores like JCP and Sears.

Target Shoppers Heading to Wal-Mart in Droves

Bernstein produced a research piece a few months ago that attempted to answer the question of whether Wal-Mart was taking market share from Target and the answer was no. The reality is that both stores continue to take share from mom and pop retailers but especially from grocers in the markets that each is operating.

Of course Target isn't going to suddenly have a full, new plan just because the economy is weaker. For the past 5 years they've been adding more consumables to the mix and they're simply going to continue that plan along with emphasizing the "pay less" part of the slogan. Frankly, I'd be more concerned if management was going to come up with a brand new strategy due to this recession. Downturns like this should be included in any management team's long term strategy and a brand new plan would indicate to me that they weren't good long range planners to begin with.

As for Ackman, I don't really mind if he gets seats on the board but I think his plan is financial engineering at best. I am not a fan of his plan for TGT.

Lampert's Move Is All About Brands

It will still take this strategy some time to play out. Let's say that they do start selling their better known brands through places like Target, HD, Lowe's Autozone, etc and they start closing marginal stores, what are the remaining reasons to go to the good Sears stores? If you can go to Target to pick up your favorite brand of boxer shorts, what reason do you have to go to Sears? Over time, I think this strategy could work but in the interim they're going to be left with a lot of stores that don't sell very much stuff.