AddThis

Sam would be turning over in his grave

Reference to the posthumous gyrations of Walmart’s legendary founder Sam Walton were quite common in recent years as the company pursued a wide range of disruptive strategies in the name of Project Impact. You never had to look far to find someone with an opinion on how Walton would feel about some aspect of Walmart’s business, as the universe of those who profess to have some unique insight into his psyche is so large. Some used Walton’s legacy to support Project Impact because he was an advocate of change and swimming upstream, while others could shoot down the new direction embodied in the broad slate of initiatives because they were a deviation from core operating philosophies that made Walmart successful.

One thing that all can agree on is that Walton would find disturbing recurring reports of the minimal pricing gap between Walmart and Target. The most recent example involves a report from Kantar Retail that Target actually had lower prices than Walmart when prices were compared on a basket of 39 national brand edible, non-edible and health and beauty products at two stores in Massachusetts. Prices were said to be 2.8% lower at Target, and that’s not including the additional 5% discount that accrues to those who participate in the new REDcard Rewards loyalty program launched last fall.

Clearly, comparing prices on 39 items at two stores does not make for a methodologically sound study if it can even be called a study, but the Kantar data is another data point in a recurring theme documented by others.

Credit Suisse conducts a more rigorous pricing study on a monthly basis where it looks at stores in the Dallas and Chicago markets. Walmart consistently beat Target, but usually by a narrow margin, and in the latest iteration of the study Target was only 3.9% off of Walmart’s basket total. The firm noted that the price differential doesn’t take into account Target’s REDcard.

J.P. Morgan also conducts a regular pricing study in the Northeast where it looks primarily at food prices, and the results are similar with the gap between Walmart and Target being rather minimal and Target having a lower net price to shoppers who benefit from the 5% savings program.

This combination of a narrow pricing gap, something Target has long claimed existed, with a 5% loyalty program that Walmart doesn’t yet have an answer for, promises to become an increasingly prickly issue as 2011 wears on. Fuel and food prices, always sensitive issues for shoppers, will become even more so this year as inflation expectations now appear to be a given. Meanwhile, Target continues to aggressively remodel stores to expand its food and consumable offering while marketing a loyalty program regarded by many analysts who follow both companies as a game changer. Walmart may continue to have lower shelf edge prices, but without a more meaningful degree of separation it runs the risk of savings claims ringing hollow with shoppers, at least when it comes to Target.