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November 16, 2012

A tale of two discount chains

NEW YORK — This holiday season, the biggest discount chains in the U.S. will tell the tale of two very different shoppers: those that have and those that have not.

Wal-Mart Stores Inc., the world’s largest retailer, on Thursday acknowledged that its low-income shoppers continue to struggle in the economy and issued an outlook for the fourth quarter — which encompasses the holiday shopping period — that falls below Wall Street estimates. On the same day, its smaller rival Target Corp., which caters to more affluent shoppers, said it expects results during the quarter to exceed the Street’s projections.

The two discounters offer valuable insight into how Americans will spend in November and December. Some merchants depend on the holiday shopping season for up to 40 percent of their annual sales, but economists watch the period closely to get a temperature reading on the overall mood of American consumers.

The forecasts seem to confirm a trend that has taken shape during the economic downturn. Well-heeled shoppers spend more freely as the economy begins to show new signs of life, while consumers in the lower-income brackets continue to hold tight to their purse strings even as the housing and stock markets rebound.

Wal-Mart and Target both are discounters, but they cater to different customers. Wal-Mart, which says its customers’ average household income ranges from $30,000 to $60,000, hammers its low-price message and focuses on stocking basics like tee shirts and underwear along with household goods. But Target, whose customers have a median household income of $64,000 a year, is known for carrying discounted designer clothes and home decor along with detergent and dishwashing liquid.

Even the tone that the retailers struck on Thursday was different. Charles Holley, Wal-Mart’s chief financial officer, told reporters that the retailer’s customers still are worried about high unemployment and higher basic costs for things like gas.

Meanwhile, Gregg Steinhafel, Target’s chairman and president, told investors: “We feel good about our ability to deliver inspiring merchandise, most-wanted gifts and unbeatable value, while also generating expected profitability.”

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