Cheap Chic Backfires for Target

Target is planning a major expansion of its food offerings—adding many more perishable items like fresh meat and produce—as a way to compete better with Wal-Mart and to increase the number of trips each customer makes to its stores.

The effort highlights a problem that is endemic to Target's "cheap chic" marketing philosophy: The chain does well during good times, and it does terribly during bad times.

Contrast this with Wal-Mart, Target's much-bigger rival, which does well during good times and, often, even better during bad times.

The problem for Target is that consumers tend to concentrate more on the "chic" than they do on the "cheap." People think of Target as the place to get nice stuff relatively cheaply. But during downturns, people aren't looking for relativity; they're looking for bargains, period.

Target's chief of merchandising, Kathee Tesija, speaking to analysts the other day as the company issued its dismal annual and fourth-quarter results, said that consumers have it wrong. Target's products are "priced within one to two percentage points of Wal-Mart," she said. But customers' "perceptions do not reflect this reality."

Yet that reality still puts Target's prices higher than Wal-Mart's. And when a downturn is bad enough, that matters. Still, she said, "we are intently focused on improving perception, so guests understand that not only are we the right destination for all their needs but we can meet those needs without compromising quality or the guest experience at prices that meet the competition."

Hence the meat and produce. Target has been selling food for some years now, and has spent the past few years expanding its offerings. It probably should have been offering meat and produce all along—without them, shoppers tend to think of the food  as incidental, a convenient way to pick up a gallon of milk or that forgotten pie crust while they shop for pants, laundry baskets, and cleaning supplies.  

With them, hopes CEO Gregg Steinhafel, Target will get "greater frequency," more "guest loyalty" and an increased perception of Target as a "shopping destination."

Target is also adding more shelf space for packaged foods, as well as health and beauty items. And it is boosting investments in its private-label food items.

It's hard to say how well this might work. Target isn't giving details on how much the effort will cost. But it will be expensive—handling perishable food is different in kind from handling packaged food, and lots of new equipment will need to be installed.

And it could be that Target is too late to the game. "The company's game plan is very similar to the one Wal-Mart has followed for years," noted Dow Jones reporter Karen Talley.

There is also a big risk in trying to become more like Wal-Mart. It might work in the short run, but what happens when the recession is over? If consumers see little difference between Target and Wal-Mart, they're going to shop at Wal-Mart.