Target CFO: We're Sitting Out the Low-Price Wars This Holiday Season

Target Store shoppingDon't expect crazy markdown sales at Target (TGT) when you shop for gifts this holiday.

The trendy discounter will opt out of the price wars during the biggest shopping season of the year. And if that means it loses sales to rival chains, that's OK by Target.

"We're not interested in driving sales for the sake of sales, [so] you might see us lag competitors in terms of comp-store sales increases," said John Mulligan, executive vice president and chief financial officer of Target, during Goldman Sachs' Global Retailing Conference on Wednesday.

Instead, Target is playing up the first half of its "expect more, pay less," promise this gift-giving season, and its raison d'etre: upscale and trendy exclusive collections, most notably a new fashion and home line it co-created with tony Neiman Marcus department stores.

When it came time to plot its strategy for the holiday, a make-or-break period for retailers, Target management pondered, "How do we compete effectively our way?" Mulligan said. "The Neiman Marcus [co-branded collection] brings something that's about fashion and differentiation, which is how we compete in the marketplace, and not focus so much on the lowest price of a 44-inch television."

But even with that buzz-generating product line, Target's business for the remainder of the year will be challenging, he said.

Indeed, sales for the rest of 2012 will trail those from the first half of the year, due in part "to the ultra competitive nature of that [holiday] season, as it relates to driving sales," Mulligan said.

The macroeconomic picture is also dimming the chain's outlook.

Factors ranging from a "very cautious consumer" to the impending fiscal cliff and the presidential election "creates [even] more uncertainty, and uncertainty we don't think is good for retailers," he said.

In turn, the chain has planned its inventory levels conservatively in case shoppers are hesitant to buy. "We have not built in a lot of good news about the economy" into the business plan, Mulligan said.

"We're seeing what the consumer does. Our business will be planned appropriately, given what's going on in the world."

5 Retailers That Are Showrooming-Proof
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Target CFO: We're Sitting Out the Low-Price Wars This Holiday Season

At a time when Best Buy (BBY) is closing stores and looking for a new CEO, rival hhgregg is thriving.

The consumer electronics retailer saw net sales climb 21% in its latest quarter, and it's planning to add 20 to 22 new stores in its fiscal year that began in April.

Why is the awkwardly named hhgregg growing at a time when Best Buy is shrinking? Well, hhgregg emphasizes heavy appliances and mattresses, which are among the many items that may be too big to effectively sell online. Can you imagine the shipping charges on a washer/dryer combo? It also helps that hhgregg doesn't rely on regular traffic from folks picking up the latest CDs or DVDs, as digital delivery of music and video is also clobbering Best Buy.

The cheap-chic discounter is tackling the showrooming trend head-on. Earlier this year, the company revealed that its plan to keep (AMZN) at bay involves a steady diet of exclusive products.

Target routinely teams up with trendy designers for product lines that can only be purchased at Target. If vendors can't provide the chain with Target-exclusive products, the company is asking for pricing discounts so it can match online-only rivals.

It's not a perfect strategy, but Target also has a level of panache that's lacking at its rival discount department stores. People gab about going to Target -- or "Tar-zhay" -- on Twitter or Facebook. You'll probably never see anyone bragging about heading out to Kmart.

Warehouse clubs are used to cutting costs to the bone. The exposed beams, stacked racks, and frills-free decor aren't an intricate theme. The warehouse setting is deliberately bare-boned to pass the savings on to end users.

It also doesn't hurt that items are being purchased in bulk for deep savings. And, naturally, the perishable nature of many of its items also makes them a natural choice for in-store, rather than online, purchases.

How popular is Costco? Well, it pushed through a 10% increase in its monthly membership fee -- yes, Costco shoppers have to pay for the right to shop there -- and customers didn't flinch at all.

Another Best Buy rival that's showing no signs of online stores nibbling at its market share is Conn's. The company's latest quarter saw comparable-store sales soar 17.8%. As Best Buy copes with shrinking margins, Conn's gross margins expanded to the point that it was able to deliver quarterly operating profits and net income that more than doubled over the prior year's performance.

Part of Conn's recipe for success is an emphasis on the appliances and mattresses that have been keeping hhgregg immune from the deadly dot-coms, but Conn's also goes even further by offering full furniture lines.

Conn's 64 stores are also in the farming heartland of Texas, Louisiana, and Oklahoma -- places where the prevalence of homes on large tracts of land benefit its sales of lawn tractors and zero-turn mowers.

CarMax is the country's largest retailer of used cars. Its 112 used-car superstores offer haggle-free pricing, and they'll buy your used car even if you don't buy one. Why not? The company's gross profit on used cars is three times greater than the gross profit on new vehicles.

Being a category killer has its advantages. Even the success of eBay (EBAY) with its eBay Motors ultimately can't compete with CarMax's regional presence in 56 markets.


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