What’s Next in the Walmart/Target Battle?

Walmart, everyone agrees, has had a very good recession. Their chief competitor in the discount sector, Target, has fared better than many retailers, but has definitely not kept pace with the leader.

In all, total sales at Wal-Mart rose 2.7% last quarter from a year ago, to $104.3 billion, when one ignores the impact of currency fluctuations, which hurt Wal-Mart's large overseas operations. At Target, sales fell 2.7%, to $14.6 billion in the second quarter.

Apparently a lot of people felt that Target’s celebrated “cheap chic," which had served it so well in good times, might have too much emphasis on “chic” and not enough on “cheap” and therefore opted for Walmart’s single-minded focus on low prices.

But what about the next round? If we are finally starting to see a recovery, how will the two giants fare over the next six months to a year?

The answer, I think, lies in the answer to another question that has been widely debated – has the recession created a "new normal?" Is there a new mindset which will cause consumers to continue to scrimp even as the economy recovers?

My guess, as I’ve stated here before, is no. While this has been a strong recession, deeper than folks even in their forties have felt in their adult lives, it has not been a re-run of the Great Depression, which shaped consumers’ outlooks for decades. It has been more like the nasty recession of the early eighties, which people shook off relatively quickly. While we may not return to conspicuous consumption for a while, I think most folk’s basic buying patterns will return to near-normal in 2010. This article cites something that doesn't impress me at all as proof of big changes in consumer behavior:

… consumers moved by the end of 2008 to save more than 4 percent of their disposable income, the highest rate since January 2004. Clearly, things have changed for American consumers and for CPG companies.

An interesting data point, but savings rates weren’t at record levels in 2004, so a rate that isn’t even that high doesn’t seem to signal a huge shift in behavior or thinking.

But I’ve been known to be wrong.

The outcome of this question about overall consumer behavior and attitudes, though, will probably determine which of the discounters wins the recovery. If most of the public continues to hold on tight to their paychecks, then Walmart will have the edge. If people decide they can perhaps afford a bit of chic along with the cheap, then Target will be the winner.