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Example research essay topic: Wal Mart Stores Upper Middle Class - 1,393 words

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TARGET STORES, the crown jewel of the Target Corporation, would appear to have everything: zippy ads, fast-growing sales and exclusive merchandise that people rave about. But inside the headquarters tower here, where Target's decisions are made, no one is about to relax. With Kmart hobbled by bankruptcy, it is Target that now gets the attention of Wal-Mart Stores, the biggest retailer in the land and the biggest company, too. Every successful step that Target takes -- signing designers to make baby bottles and little black dresses, moving deeper into the grocery business, persuading more and more upper-middle-class shoppers to become upper-middle-class bargain hunters -- brings it into closer confrontation with the $ 218 billion behemoth that is Wal-Mart.

At stake are the wallets of the growing number of consumers who shop discount stores by choice. In most respects, the Target Corporation -- which also owns the Marshall Field's and Mervyn's department stores -- is performing spectacularly well. It reported sales of $ 39. 9 billion for the most recent fiscal year, mostly from its 1, 100 Target stores, pushing it ahead of the beleaguered Kmart to make Target the nation's second-biggest discounter. Analysts are impressed with its earnings, which soared 36 percent, to $ 345 million, in the most recent quarter as revenue increased 15 percent, to $ 9. 59 billion. Their enthusiasm is reflected in Target's share price, which rose 27 percent last year, although it is off around 6 percent this year. By comparison, Wal-Mart's sales in the first quarter rose 14. 4 percent, to $ 55 billion.

Its net income in that period jumped 19. 7 percent, to $ 1. 7 billion. Shoppers go to Target for a selection that includes detergent and batteries, in the tradition of all discount stores, but also for designs from Philippe Starck, Stephen Sprouse, Sonia Kashuk and Todd Oldham that can be found only at Target. (Executives say good design should be democratized. ) ''I like the idea of having good design at affordable prices, ''s aid Sarah Ettenberg, a decorative-arts expert in Manhattan who shops for Michael Graves and Philippe Starck housewares but also pairs Target blouses with more expensive slacks she buys elsewhere. WITH an image perpetuated with distinctive, arty ads -- and lots of them -- the Target chain is by far the best-performing unit of the parent corporation. In the first quarter, Target stores provided 89 percent of the company's pretax profit, up from 82 percent last year. In 2001, 92 percent of the corporation's capital spending, or $ 2. 9 billion, went to the Target chain. Target's senior executives say they are just starting. ''We feel we can double our current size and triple our volume over the next seven to eight years, ''s aid Robert J.

Ulrich, the chairman and chief executive, whose lean and rangy look, complete with black cowboy boots, suggests the Marlboro Man more than a mass merchandiser. But that will mean even more scrutiny from Wal-Mart, which once preoccupied itself with Kmart, not that anyone at Wal-Mart will say that in so many words. ''We don't normally comment on other retail companies, '' a spokesman said last week. ''But that being said, we do respect Target and view them as a good competitor. '' Tom Coughlin, the president of the Wal-Mart Stores division, said: customers who live paycheck to paycheck ''will always be important to us, but we " ve realized the shifts that have gone on in retailing, particularly this year. Customers at all income levels are interested in value. '' Target executives like to point out that the chain promotes contemporary fashion while it keeps prices low, while Wal-Mart is known for low prices, and low prices only. But the two chains have much in common.

Both are building grocery stores by the dozen -- Wal-Mart calls them Super Centers and Target calls them Super Targets -- to attract new customers. That means they will be competing more intensely in a category in which margins are already razor-thin. By expanding into the grocery business, Wal-Mart wants to increase the volume of shoppers coming into its stores. But it also wants to increase the average purchase made by those shoppers, which also means adding higher-ticket products to the mix of general merchandise. Target says its strategy is to have its existing customers buy groceries, swelling their purchases and bringing them into the stores more often. The company says it is not counting on luring customers from other supermarkets.

It also assumes that former Kmart customers will wind up at Wal-Mart rather than Target. In some areas, Wal-Mart has already shown how it intends to compete with Target, which promotes ''fast, fun and friendly''s ervice. In some stores in Phoenix, for example, Wal-Mart hired extra workers earlier this year to try to beat Target in the crucial area of customer satisfaction, said Burt Flickinger III, a managing partner at Reach Marketing, a retail consulting company in Westport, Conn. ''So you had this big change, with shoppers raving about the amount of customer service in Wal-Mart stores, '' he said. It is a tactic that can be replicated almost anywhere, because the two companies compete across the country.

About 70 percent of Target's stores are in markets where there is also a Wal-Mart, and Target has more stores in California, Texas and Florida than anywhere else -- just as Wal-Mart does. Because most shoppers have a choice, the question becomes whether the two companies can coexist. ''They are getting 40 percent of their growth from Super Target this year, ''s aid Michael Porter, a retail analyst for Morningstar in Chicago, referring to Target's plans to increase its grocery operations. ''And that puts them squarely in Wal-Mart's ballpark. '' Target's strategy also has risks, he said, because groceries, unlike apparel and housewares, offer little opportunity for differentiation. ''You can't have Michael Graves oranges, '' he said, referring to the designer who has helped Target give its housewares a distinctive style. There is, however, a Fuji apple at Super Target that has been screened for sweetness, using infrared equipment that measures the fruit's sugar level, and a banana that has been temperature-tested to make sure that it does not ripen too fast. In any case, executives at Target, which was founded 40 years ago as the discount arm of the Dayton Department Store here, say their shopper is not a Wal-Mart shopper, and vice versa. ''People who are oriented toward quality and design do more of their shopping at Target, '' Mr. Ulrich said in a recent interview. ''People who are focused on price tend to go to Wal-Mart. '' Executives at Wal-Mart are less succinct in defining their customers. They say a natural extension of their strategy is to appeal to better-heeled shoppers -- as long as that does not mean alienating their traditional customers, the ones who buy everything from peanut butter to paintball masks at their local Wal-Mart.

Retailing analysts said they believe that after battling other discounters successfully for years, Wal-Mart can now attract shoppers who go to Target, Costco and other chains that have gained a foothold with the upper middle class and the wealthy by selling groceries and carrying luxury goods -- like video cameras, fine wines and designer-label clothes -- at cut-rate prices. Target knows that, but its executives say they can hold their ground. ''Yes, they are the biggest company in the world, and yes, we feel threatened by them, '' Mr. Ulrich said. ''But if we do our job every day, there's still a niche and a need for Target. '' He is doing his best to keep that niche distinctive, from the products to the profits squeezed from the sale of each one. And in that last area, Target beat Wal-Mart last month: its profit margin was 8. 44 percent, versus Wal-Mart's 7. 21 percent. Some of the difference can be attributed to Wal-Mart's larger sales of groceries, which typically have a significantly thinner profit margin than general merchandise. NEVERTHELESS, analysts cheer the progress at Target. ''We see the operating profit margin gap between Target and Wal-Mart widening, ''s aid Wayne Hood, a retail analyst for Prudential Securities in Atlanta, who recommends that investors buy both Target and Wal-Mart stock. (The firm owns about 600, 000 shares of Target, or about 0. 07 percent of the shar...


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Research essay sample on Wal Mart Stores Upper Middle Class

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