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Target Trumps Wal-Mart, But Look Who Else Is Coming

This week's batch of earnings reports showed that Target trumped Wal-Mart Stores, but Target still needs to watch its back, because other retailers are grabbing a bigger chunk of the consumer budget.

Wal-Mart's earnings disappointment this week and theannouncement of a four-point strategyto turn its business around acknowledged that the retailer needed to reinforce its image as the discounter with the lowest prices.

Customer Growth Partners President Craig Johnson is out with some new research that reinforces this point.

According to Johnson, a straight-up comparison of an identical market basket of 35 commonly purchased items shows that the two discounters are in a virtual tie, with Target's price tally 0.7 percent less than Wal-Mart's.

But Johnson makes an interesting observation: If a customer is a Target Redcard holder, the customer would receive a 5 percent savings, and that widens the gap considerably.

Walmart locations have long suffered a "convenience gap," compared with smaller competitors such as dollar stores, Aldi and drugstores such as CVS and Walgreens , Johnson said.

This is because most families shop differently nowadays. Pressed for time, they make fewer "pantry-loading" trips, where they would spend more than an hour in the store stocking up on a number of goods, Johnson said.

Instead, families make "fill-in trips," where they run into a store and grab a few items they need on their way home from work; or they make "rifle-shot" trips, where they go out shopping for one item that they want to buy.

With their massive size, Walmart stores are difficult to manage for these shorter trips. Instead, consumers are looking to smaller stores, where they can run in and run out.

Over the past year or so, Target has opened up an "innovation gap," Johnson said, citing Target's P-Fresh grocery initiative and the 5 percent Redcard discount as examples.

And these efforts are paying off. Target customers are buying more items each trip, but many of these items are staples that are consumed, such as food.

A lot of that is owed to the RedCard initiative, which is what's giving Target the advantage of a bona fide price gap in its favor.

Still, Johnson argues it is not all smooth sailing for Target.

Target's revenue rose 3.7 percent from 2009 to 2010, lagging the overall US retail market growth of 4.9 percent.

"Target lost market share for the first time in years to Kohl's and a revived Macy's in more upscale apparel/home, and to the dollars, Aldi and Ross Stores and TJ Maxx in the more price sensitive segment," Johnson said.

Questions? Comments? Email us at consumernation@cnbc.com

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