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When Target, Walmart are too expensive

Customers push shopping carts in the parking lot of a Target store California.

The No. 2 U.S. retail chain, Target, lowered its earnings expectations for the year today. Growth was slower than expected in the U.S. Third-quarter net income was down 47 percent. Target can blame its expansion into Canada for some of that; it's not going well. But on the U.S. side of the border shoppers just don't have a whole lot of disposable income these days. It's tough being a discount store that relies on consumers who are feeling squeezed.

Walk into the Target in downtown Los Angeles and you will notice bright, shiny floors, and racks of clothes with designer names attached. Store manager Simone Tatro describe's the ideal Target customer. "She works, she's successful, she has some children at home, she really loves the finer things in life," Tratro says. "But she has come to expect our 'expect more, pay less' brand promise."

Target's marketing strategy has always been to offer more a more upscale experience than Walmart, and Wharton marketing professor Stephen Hoch says it does that, from the moment customers walk in the door. "But," he adds, "the farther you get back in the store, the more Target starts looking like a Walmart."

Ultimately Target and Walmart are going after the same lower and middle income customers. But since the recession they 're spending less of their income on non-essentials. They were hit especially hard by the two percentage point increase in the Social Security payroll tax last Jan. 1.

Target's response has been to focus on its most affluent customers, says retail analyst Amy Koo. "The idea," she says, "is that they've been focused on this Target guest that is specifically higher income and is more able to spend."

But even the spending of those customers has plateaued, says Koo. Last week the CEO of Walmart's international division, Doug McMillon, said consumer spending in both developed and emerging markets was down and he expected that trend to persist through the rest of the year.

About the author

David Weinberg is a general assignment reporter at Marketplace.

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