Target thrives in Wal-Mart country

The retailer opened up shop near Wal-Mart's headquarters. The result is friendly competition that's raising everyone's game.

By Suzanne Kapner, writer

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Wal-Mart CEO Mike Duke is a frequent visitor at the Rogers, Arkansas Target.

ROGERS, ARK. (Fortune) -- If Target builds it, will shoppers come?

That was the question some local residents asked when Target opened its first store here in March, deep in the heart of Wal-Mart country.

The answer is, not only do they come, but sometimes they bring their spouses, who do business with Wal-Mart.

"I've always been more partial to Target, because they have a better clothing selection," says Angela Klauck, who moved here a year ago from Austin, Texas, when her husband got a job with a Wal-Mart vendor. Asked whether he would be upset with her for shopping the competition, she said, "Absolutely not. He'd be right here shopping with me."

Wal-Mart (WMT, Fortune 500) executives, in fact, have become regular visitors at this Target (TGT, Fortune 500) store. It's located about seven minutes from Wal-Mart No. 1, the first Wal-Mart ever built, which opened in 1962, and is about 20 minutes (without traffic) from Wal-Mart's headquarters in neighboring Bentonville.

Former Wal-Mart CEO Lee Scott and his successor Mike Duke are both frequent visitors, according to Target store manager Chuck Simmons, who jokes that he has become so friendly with Wal-Mart's district manager that "he's like my second boss."

A welcome alternative. Operating in Wal-Mart's backyard has its share of surprises. For one, grocery sales at this Target, which spans 136,666 square feet, about the size of a typical general merchandise store, have been surprisingly strong considering that unlike the Wal-Mart stores in the region (there are five in Rogers), it offers no fresh food, only frozen, canned and packaged goods.

No matter. Shoppers say they welcome the alternative. "It's nice to have an option other than Wal-Mart," says Lainie Button, who browsed the aisles of Target on a recent afternoon with her mother and sister.

Still, for all the fans Target is winning over in Rogers, the company, as a whole, has continued to trail its larger rival. Target's May sales slumped 6.1%, while Wal-Mart, which no longer issues monthly sales numbers, said it expects its second quarter same-store sales to be flat to up 3%. (Please see correction below). And although the new Target in Rogers is sparkling and pristine, it is not as busy as nearby Wal-Mart stores, or even as busy as the Target in Fayetteville, about 30 minutes away, several customers said.

Simmons concedes that there is a certain pressure to running a store in Wal-Mart's home turf. "There are people who come in here who have my CEO's cell phone number," he says, alluding to the dozens of vendors who have set up camp in Northwest Arkansas. The last thing he wants, he says, is to get a call from Target chief Greg Steinhafel wondering why he is not doing things the Target way.

All in all, though, Simmons says he likes being close to his biggest rival. "It makes for better competition," he says, "and raises everyone's game."

An earlier version of this story incorrectly stated that Target's May sales were down 4.3%. To top of page

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