walmart
... purchase made by those shoppers, which also means adding higher-ticket products to the mix of general merchandise. Target says its strategy is to have its existing customers buy groceries, swelling their purchases and bringing them into the stores more often. The company says it is not counting on luring customers from other supermarkets. It also assumes that former Kmart customers will wind up at Wal-Mart rather than Target. In some areas, Wal-Mart has already shown how it intends to compete with Target, which promotes ''fast, fun and friendly'' service. In some stores in Phoenix, for example, Wal-Mart hired extra workers earlier this year to try to beat Target in the crucial area of customer satisfaction, said Burt Flickinger III, a managing partner at Reach Marketing, a retail consulting company in Westport, Conn. ''So you had this big change, with shoppers raving about the amount of customer service in Wal-Mart stores,'' he said. It is a tactic that can be replicated almost anywhere, because the two companies compete across the country. About 70 percent of Target's stores are in markets where there is also a Wal-Mart, and Target has more stores in California, Texas and Florida than anywhere else -- just as Wal-Mart does. Because most shoppers have a choice, the question becomes whether the two companies can coexist. ''They are getting 40 percent of their growth from SuperTarget this year,'' said Michael Porter, a retail analyst for Morningstar in Chicago, referring to Target's plans to increase its grocery operations. ''And that puts them squarely in Wal-Mart's ballpark.'' Target's strategy also has risks, he said, because groceries, unlike apparel and housewares, offer little opportunity for differentiation. ''You can't have Michael Graves oranges,'' he said, referring to the designer who has helped Target give its housewares a distinctive style. There is, however, a Fuji apple at SuperTarget that has been screened for sweetness, using infrared equipment that measures the fruit's sugar level, and a banana that has been temperature-tested to make sure that it does not ripen too fast. In any case, executives at Target, which was founded 40 years ago as the discount arm of the Dayton Department Store here, say their shopper is not a Wal-Mart shopper, and vice versa. ''People who are oriented toward quality and design do more of their shopping at Target,'' Mr. Ulrich said in a recent interview. ''People who are focused on price tend to go to Wal-Mart.'' Executives at Wal-Mart are less succinct in defining their customers. They say a natural extension of their strategy is to appeal to better-heeled shoppers -- as long as that does not mean alienating their traditional customers, the ones who buy everything from peanut butter to paintball masks at their local Wal-Mart. Retailing analysts said they believe that after battling other discounters successfully for years, Wal-Mart can now attract shoppers who go to Target, Costco and other chains that have gained a foothold with the upper middle class and the wealthy by selling groceries and carrying luxury goods -- like video cameras, fine wines and designer-label clothes -- at cut-rate prices. Target knows that, but its executives say they can hold their ground. ''Yes, they are the biggest company in the world, and yes, we feel threatened by them,'' Mr. Ulrich said. ''But if we do our job every day, there's still a niche and a need for Target.'' He is doing his best to keep that niche distinctive, from the products to the profits squeezed from the sale of each one. And in that last area, Target beat Wal-Mart last month: its profit margin was 8.44 percent, versus Wal-Mart's 7.21 percent. Some of the difference can be attributed to Wal-Mart's larger sales of groceries, which typically have a significantly thinner profit margin than general merchandise. NEVERTHELESS, analysts cheer the progress at Target. ''We see the operating profit margin gap between Target and Wal-Mart widening,'' said Wayne Hood, a retail analyst for Prudential Securities in Atlanta, who recommends that investors buy both Target and Wal-Mart stock. (The firm owns about 600,000 shares of Target, or about 0.07 percent of the shares outstanding.) Target monitors profits extremely well. Few retailers apart from Wal-Mart keep such tight control over their business, from selecting the inventory to ringing up a sale. Its basic premise -- that customers first must be happy if they are to buy anything -- means telling clerks in the sprawling stores to be ''fast, fun and friendly'' and watching them, electronically and otherwise, to make sure that they are. Target managers grade store employees regularly -- green is good, yellow is alarming, red is trouble. A store with too many red grades gets a special visit from a district manager, who then returns at 11-day intervals until he or she sees improvement. All stores give the central office daily reports about topics like returns and checkout speed; Target customers are polled at least twice a year about their experiences. Employees learn that they are crucial to Target's success. ''We tell them, 'Your job is to manage the brand at the store level,' '' said Bart Butzer, the executive vice president of Target Stores, who keeps thick binders of report cards on every store. ''The challenge is getting all 1,100 stores to run the same way and deliver that Target experience every day.'' Managers, whom the company calls store team leaders, hold ''huddles'' with workers each morning and are encouraged to thank them for jobs well done. IN the back room of a SuperTarget in Minnetonka, Minn., a western suburb of Minneapolis, the quest for controlled excellence can be seen from the spotless floors to the posted ''error rates,'' which measure how often a worker puts a product on the wrong shelf. One worker -- or associate, in Target's language -- had an error rate of 0.2 percent; the goal is 3.5 percent or lower. Returning, say, loose bottles of creme rinse to the right place is made easier by a filing system that is as organized as a library's. Instead of open shelves in the return room, however, shelves hold cardboard containers, arranged by bar code, that match the coded information on every product. ''This little machine runs the entire store,'' said Mike Kuast, a manager, displaying a hand-held scanner that reads bar codes, calculates how much is needed on a shelf, matches it against predetermined product needs for the store and tells the company's nearest distribution center when that store is likely to need another shipment. Wal-Mart also uses sophisticated computers to track its inventory. Target's penchant for control was tested after the company went into the grocery business in 1995, with a handful of stores in the Minneapolis area. (There will be 92 SuperTargets by October.) The stores follow a plan sent from headquarters: each has a Starbucks coffee bar just inside the front door, a sushi chef hired from a California company and an elaborate bakery and deli section. At the end of most aisles is a red service phone that customers -- known as ''guests'' in Target-speak -- can use to get help in finding the Gulden's mustard or the Philippe Starck chocolate spread. Everyone from the clerks on the floor to the vice president in charge of stores knows when that phone rings. ''Headquarters gets a printout of how many times it went on and how fast the response was,'' said Jon Radtke, a manager in the Minnetonka store. But aisles don't always have to look like a page out of a trade journal, as the company learned the hard way when sales failed to take off. ''We found that guests thought the display was too perfect,'' Mr. Radtke said of the cereal aisle, cradling a box of Life. ''So instead of filling the shelves continuously, now we do it only once, at 2 o'clock, and then again after the store closes.'' Initially, giving away free bites of bologna or potato salad did not sit well with Target executives. To Target, that's ''shrink,'' or lost revenue, said Jeff P. Thomas, the manager for perishables at SuperTarget, who arrived last year from a supermarket chain in Virginia. He and others hired from the grocery business helped change that mentality; these days, someone strolling near the lavish deli counter at a SuperTarget may well be offered a sample. TARGET'S venture into grocerie...