Target needs tougher talk on paying less

By Nicole Maestri - Analysis

NEW YORK (Reuters) - For the past few years Target Corp (TGT.N) has focused on the first half of its "Expect More. Pay Less" tagline to lure consumers with the promise of name-brand clothes and home decorations at discount prices.

Now the discount retailer is trying to increase its focus on the "Pay Less" side of the equation as U.S. consumers rein in spending, and profits fall.

A recent coupon book mailer emblazoned with the words "Flip. Clip. Save" offers discounts on consumer staples like laundry detergent, toilet paper, bottled water and pet food.

A TV ad also emphasizes low prices. It shows a tower of toilet paper with the phrase "More soft" that transitions into a package of Scott toilet paper and the words "Less cents." Another scene shows glasses of water and "More splash" that changes to Dasani water and the phrase "Less cash."

But with the U.S. consumer spending slowdown showing no signs of abating, Target needs to ratchet up its low-price theme to convince shoppers it has mastered low prices on necessities, like food and toothpaste, the same way it mastered cheap but chic fashion and home design.

"When economic times get hard and the business model is under strain, you need to find a way to refine your advertising to actually make it work harder, and I don't think they have yet," said Zain Raj, chief executive of loyalty marketing firm Euro RSCG Discovery.

HITTING THE BULL'S-EYE

Target has been credited in the past decade with helping to reinvigorate the discount store concept.

Rather than compete with larger rival Wal-Mart Stores Inc (WMT.N) solely on price, it set out to lure more affluent shoppers with its brightly lit stores, clever ads featuring its red bull's-eye, and innovative products -- like pet couture by designer Isaac Mizrahi.

Its loyal customers began referring to the retailer in faux French as "Tar-zhay," and competitors mimicked the retailer, teaming up with designers for their own product lines.

Its sales growth began outpacing that of Wal-Mart as shoppers loaded up on its trendy clothes, handbags and home decor.

But the efforts also cemented the notion in shoppers' minds that while Target is a discount retailer, its prices may not be as low as its competitors.

According to BIGresearch's July Consumer Intentions & Actions survey, the 1,050 female shoppers who said they buy clothes only on sale listed Wal-Mart and Kohl's Corp (KSS.N) as the two retailers where they shop most frequently. Target ranked fourth, behind J.C. Penney Co Inc (JCP.N).

That is now an issue as Target's middle-income shoppers, squeezed by higher food and fuel prices, the crumbling housing market and rising mortgage payments, have also become bargain hunters.

Rather then splurge on higher-profit goods like cashmere sweaters or metallic handbags, they are leaning toward basics, like laundry detergent and household cleaners.