Walmart has 'upper hand' versus Target in this key area: Analyst

In the competition between Walmart (WMT) and Target (TGT) over America's shoppers this quarter, Walmart took home the trophy.

Walmart's expanding grocery business has been its gateway to consumers who are otherwise more cautious about their discretionary spending.

The retailer's message to customers: Come in for the groceries, and stay for shirts, electronics, and other merchandise.

"This is where we're seeing that Walmart has the upper hand compared to Target," LSEG director of consumer research Jharonne Martis told Yahoo Finance Live (video above). "They've gained those loyal customers because of groceries, and now that's converting into them extending themselves and buying general merchandise."

Foot traffic increased at Walmart in the most recent quarter, up 2.8%. Target saw foot traffic drop by 4.8%.

And once shoppers are in the store, they're buying more at Walmart too.

Walmart's average ticket size rose by 3.4% while Target's edged lower by 0.7%. Overall, Walmart US saw same-store sales grow by 6.4% year over year last quarter as Target saw net sales decline by 4.9%.

The two retailers differ in a number of important ways, such as their size, business segments, and customer base, Bernstein analyst Dean Rosenblum emphasized to Yahoo Finance. For instance, while Target's food and beverage category makes up only about 20% of its sales, it's over 60% of Walmart's US business.

But "in an environment where consumers are stretched and just trying to cover the essentials, a retailer like ... Walmart, who is the biggest grocer in the world, is going to benefit tremendously from that disproportionate focus on stable spending," he said.

While the current economic backdrop isn't comparable to that during the financial crisis, Walmart gained customers with a similar strategy in '08 and '09, Morningstar analyst Noah Rohr said.

"We saw Walmart during that time period pick up a lot of share," he noted. "The grocery business did really well."

Although Target usually caters more to higher-income shoppers in suburban and urban markets, Rohr said Walmart has "taken a little bit of share" in that market.

Wall Street has taken notice, sending Walmart stock up over 11% year to date and Target stock down 12%.

"Expect some questions to emerge on Target's discretionary trends given Walmart’s general merchandise improvement in 2Q," Goldman Sachs analyst Kate McShane wrote in a note.

But don't count Target out of the game entirely.

"I don't necessarily see it as sort of a zero-sum game that if Walmart wins at the higher income that everybody else loses," Rosenblum said. "We'll see how it shakes out."

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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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