Word: davidowitz
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...growth game. From 2003 to 2007, Target's annual same-store sales growth averaged 4.6%, while Walmart's clocked in at 2.9%. Over the same period, Target's annual profit growth averaged 16%, while Walmart lagged behind at 10.3%. "Target was frying Walmart's brains out," says Howard Davidowitz, chairman of Davidowitz & Associates, a national retail investment-banking and consulting firm...
...Davidowitz notes that a "double whammy" is driving Target down. First, the retailer's product mix is not ideal in this economy. According to Davidowitz, Target devotes some 40% of its shelf space to home and apparel items, which are struggling, while setting aside less than 20% for consumables like food, health items and beauty products. Walmart sets aside 45% of its space for consumables. "Walmart sells what you need to have," says Davidowitz, "as opposed to what you want to have." Not only does Walmart sell more of the grocery items you need - the company is the world...
...dropped 80.5%, to $155 million, and the company incurred a $135 million pre-tax loss on its credit segment in the fourth quarter. "The company did great with its credit business when the economy was up, but now that it's down, carrying your own credit is devastating," says Davidowitz. At least Target can be grateful it made one smart move: in May, the company sold 47% of its receivables to JPMorgan Chase for $3.6 billion. Without that move, the devastation would be much worse...
...Target's fourth-quarter earnings call. For example, last year the company opened its first distribution center for perishable goods like fruits, vegetables and meats in Lake City, Fla. Target is slated to open another distribution center this year, in Cedar Falls, Iowa. "That's a major step," says Davidowitz. "Controlling your own distribution can improve food freshness on the shelves, and it allows you to hold on to more of the margins...
...Xanadu is the epic discretionary story," says Davidowitz. "It's the epicenter of 'not needed.' How can you have this when the consumer is completely decimated? It's already one of the world's biggest nightmares...