With the third quarter drawing to a close and the holiday season on the horizon, the country’s two biggest discount retailers have a somewhat different outlook for the end of the year.

Walmart, Target Corp., Goldman Sachs Global Retailing Conference, Bill Simon, Walmart U.S., John Mulligan, REDcard loyalty program, Neighborhood Market, Walmart Express

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Inside This Issue - News

Strategies diverge

September 17th, 2012

NEW YORK – With the third quarter drawing to a close and the holiday season on the horizon, the country’s two biggest discount retailers have a somewhat different outlook for the end of the year.

Both Walmart and Target Corp. were among the presenters at the annual Goldman Sachs Global Retailing Conference held here in the first week of September. For Walmart, Bill Simon, president and chief executive officer of the Walmart U.S. division, provided a recap of recent events as well as an upbeat view of the fourth quarter. Target’s chief financial officer, John Mulligan, meanwhile, gave attendees a detailed breakdown of the sales momentum being provided by the retailer’s REDcard loyalty program and a cautious outlook on the holidays that echoed Target’s strategy for the home stretch last year.

Simon assessed Walmart’s program for the fourth quarter as the best since he joined the company six years ago. "I think our merchants have done a terrific job," he said. "Our operators are ready. Our product and prices are sharp. We’ll have, we believe, a very large share of voice in the marketplace from marketing support, a campaign that’s effective. So we’re optimistic about the fourth quarter."

He added that he expects the environment to be challenging and intensely competitive.

According to Mulligan, Target sees the environment as very similar to six months and even a year ago, and he described the company’s customers as cautious and resilient. He pointed out that entering the year, management expected the first half to be stronger than the second half, largely because its expectation of another ultra-competitive holiday season.

"We’ve said we want to strike a balance between being there for our guest and having the merchandise that she wants at a good value during that period," he said. "But we’re not interested in driving sales at all costs."

Looking back over the first half, Mulligan noted that Target is exactly where it wants to be in terms of meeting its long-term goals of reaching $100 billion or more in sales and earnings per share of $8 or more by 2017. Strong performances by both the core retail business and its credit card segment have kept the retailer on track.

Target’s CFO elaborated on the benefits the retailer is seeing from its REDcard loyalty program. Although members receive a 5% discount on everything they buy, the chain is seeing a lift in sales of more than 50% after a guest joins the program. And since there is no incremental investment, the program is driving what he described as “significant profits” for the company.

Simon offered detail on the performance of Walmart’s smaller formats, particularly the Neighborhood Market and Walmart Express. He noted that management is pleased with their performance against dollar stores, drug stores and supermarkets.

Simon spoke especially enthusiastically about the Neighborhood Markets, which achieved comparable-store sales growth of 5% during the second quarter, with customer traffic up 3%. "This, folks, is a very strong, powerful, versatile format for us," he said.

Simon was also extremely bullish about the potential of Walmart’s rapidly advancing on-line capabilities combined with in-store fulfillment. "Imagine a small store with the operating expense of a small store, but it has the sales and operating income of a big store because we’ve enabled it with a lot of digital capability, with a very large assortment to choose from," he said.