Retailer Gets a Head Start in the Holiday Season

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After Black Friday and Thanksgiving, Target (NYSE: TGT) is again all set to welcome its customers in the upcoming holiday season in December by entering into a prudent partnership with Neiman Marcus, a luxury specialty retail department store.

Neiman Marcus will put up an exclusive collection from 24 prominent American designers. The latest offerings available to Target due to this partnership will range from fashion to sporting goods from designers like Diane von Furstenberg and Oscar de la Renta, which will be available in the stores as well as on the company’s website. It is quite obvious that Target is going to benefit from this partnership. Target is confident that this initiative on its part would help delight its customers.

The second largest retailer in the US reported 3Q12 earnings rising by 15%, helped by business generated by its debit and credit cards. The company remains confident about its holiday season plans of selling gifts at unbeatable prices and by focusing on the affluent customers. Target has learned how to make the right balance between its fashion products and the price. Its REDcard Reward Program also has differentiated the company from its competitors.

The company has ramped up its competitive capability for the coming holiday season with its recent announcement that from now on the company will match its online prices in the same way as competitors Wal-Mart and Amazon do. Moreover, the company constantly keeps coming up with new strategies to boost its sales. Currently there are 181 types of coupons available on its website, which offers the customers several options to benefit from its schemes. Let’s have a look at how Target has been winning greater market share over its competitors.

Wal-Mart (NYSE: WMT): This retail giant will be compelled to reduce its prices as Target has announced that it will now match its online prices with that in stores. Wal-Mart will be under pressure as most of its consumers are from households having average incomes in the range of $30,000-$60,000 a year and these customers are expected to remain price-conscious due to the sluggishness in the US economy. On the other hand, Target's average consumers are from the higher income group and they will not be under too much pressure.

Amazon (NASDAQ: AMZN): Amazon is facing a problem as both Target and Wal-Mart have stopped selling Amazon's Kindle Fire Tablets in their stores as both the retail giants are looking forward to take a lead in the online business. Up till now Amazon was enjoying a no-sales-tax advantage, but now this advantage has started disappearing and it has to add additional 7% to 10% on the cost on every order, which results in a higher price to the consumers. With this disadvantage the company is expected to lose ground in online sales.

With stronger position against its competitors, Target’s outlook for the 4Q12 remains positive as the company feels confident because of two of its solid fundamentals as discussed below:

Target and Neiman Marcus Partnership: Target has entered in to a partnership with Neiman Marcus to provide high designer clothes at the Target price. The stores opened on Dec. 1 offering 50 types of holiday gift items by the 24 high-profile designers. This holiday season partnership aims to reach potential new customers who might be unfamiliar with the store. The company believes that providing high-end designer clothes, matching prices and good inventory in stores will result in solid sales and increased traffic at its stores. This is being considered to be a special event for the company. With this partnership Target will be well positioned in the coming holiday season.

Target REDcard Rewards Program: Target’s REDcard is showing promising results to the company as more customers use it to purchase food, toiletries and many other items from Target's huge collection. This loyalty card gives a 5% discount to consumers, motivating them to shop more with Target. The company is pushing the use of its REDcard as in the third quarter it reported that 15% of the profit gain and the heavier spending increased 14% in its sales, which is up from 9.5% last year. In Kansas City where the company launched REDcard a year ago the penetration hiked to 20% in 3Q12. Thus it can be seen that the REDcard along with the consumer is also benefiting the company.

Summing up, Target remains committed to its creativity and exclusive product offerings for the coming holiday season to keep in-store traffic at a level high. The US retail giant has an expansion plan in store that aims towards opening 125-135 stores in Canada in 2013, accounting to 7% of the company's total stores thus swinging up its stock. The company's forward P/E ratio for 1 Year is 12.79x, which is lower compared to its competitors Wal-Mart (13.12x) and Amazon (141.21x). It seems that the company will shine during Christmas on a strong note.

ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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