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Missed Opportunities: Target Is Dawdling in Cities While Walmart Ramps Up Its Assault

Target (TGT) may be missing a golden opportunity and permanent advantage over Walmart (WMT) by not more aggressively moving into urban locations.

The retailer has emerged as less of a mark for union and quality of life activists in cities and the urbanized suburbs than Walmart. As such, it has slipped into environments that frequently have rejected its competitor. Target has eight stores in New York, for example, to Walmart's none. Target has more experience in creating specialized urban formats that give it another advantage over its rival. The retailer is preparing to apply that experience once again as it opens its first Manhattan location in Spanish Harlem this summer.

At the company's annual meeting, CEO Gregg Steinhafel insisted that Target, even as it increased its dividend, would be careful about store investment given the uncertainty in the U. S. economy. All told, the retailer will open 10 stores net of closings this year while putting most of its real estate-related capital investment into converting 340 locations to the P-Fresh standard, which provides discount stores with a full range of groceries including fresh meat and produce.

At Walmart's annual meeting, CEO Mike Duke said his company was preparing to open many more small stores. The effort won't launch overnight, and may not pick up as a major initiative for many months. Every indication is, though, that a new Walmart push at least into urbanized suburbs with its new smaller supercenters is now underway.

The momentum eventually will carry Walmart into cities proper. If the economy continues to slink slowly on its recovery road, unemployment will remain high, and Walmart may not look so unsavory to a lot of cities. A debate among groups and individuals worried about Walmart's entrance into Chicago, for example, went from how to keep the company out to whether the city needed the new jobs almost as soon as the recession hit.

In the Chicago area, Target and other retailers, including supercenter operator Meijer and food and drug combination store chain Jewel/Osco, have been able to build their presence in the immediate suburbs as Walmart remained on the exurban periphery. Jewel has been experimenting with a variety of formats, including those developed for the inner city, as has its supermarket rival Dominick's. And Meijer recently unveiled a smaller store plan developed to help it expand into urban environments in and around Chicago, locations where available real estate and operating costs might weigh against full-sized supercenters.

P-Fresh can help make Target more attractive to city customers in existing locations. The retailer recently converted an established discount store in Brooklyn, N.Y. into a P-Fresh operation, for example. Yet, at a time when commercial real estate prices have dropped and municipalities are hungry for both inexpensive shopping and additional jobs, Target may do well to take a chance and pick up the pace of growth.

During question and answer period for shareholders at the company's annual meeting last week, Steinhafel fielded a question about a Hollywood, Calif., site acquired by Target but not yet developed. Steinhafel said the company's approach to real estate would remain deliberate to ensure proper return on investment.

Yet Target has opened far more than 10 stores a year in the past. The shareholder was reassured that the site looked promising and should be fully developed in a year or two, but the world may have changed considerably over that time period. By then, the site could be hemmed in by Walmart locations.