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Americans love Target. That's bad news for Macy's, JCPenney

Discount retailer shows strong growth

MINNEAPOLIS - The winners and losers of America's great retail shakeout are becoming clear. Target and Walmart are definitely winners. Just about every traditional department store is losing.

Sales at Target stores open at least a year increased 3.4% during the summer quarter and profit rose, Target said Wednesday. Target beat Wall Street's predictions for the recent quarter and raised its profit forecast for the rest of the year.

The results come on the heels of Target's best year in more than a decade. Investors drove up Target stock around 18% in early trading Wednesday. Shares hit a record high.

Target said clothing sales increased more 5% last quarter and that it is gaining market share in the category. Those are clear signs that Target's growth is coming at the expense of apparel retailers. Target has introduced new clothing brands for men, women and kids in recent years and displayed them more prominently in stores.

"There are clear winners and unfortunately losers in retail today," Target CEO Brian Cornell said on a call with reporters Wednesday. "We're obviously taking share from other retailers that have been closing stores or haven't had the ability to invest in the needs of today's consumer."

Wall Street has punished retailers that signal weakness in their businesses.

Macy's last week said that sales at stores open at least a year inched up but profit fell 48% during its most recent quarter. Macy's lowered its expectations for the remainder of the year, dragging down its stock. JCPenney, which is trading at below $1 a share, reported last week that sales dropped 9% during its most recent quarter, continuing its steady decline.

Even Kohl's, a favorite of retail investors because of a partnership with Amazon and a creative approach, reported a slump last quarter. Sales declined 2.9% at stores open for at least a year. The Gap and L Brands, the parent of Victoria's Secret, have also been hit hard. Both companies report earnings this week.

Target, Walmart and discount clothing chains such as TJMaxx are gaining market share against these retailers. Walmart and TJX, the parent of TJMaxx and Marshalls, has reported a string of sales growth in recent years.

Target and Walmart operate stores away from malls, an advantage because foot traffic is slowing at malls around the country. Macy's and Penney, however, have heavy exposure to malls. Neither chain has put up as much capital investment to remodel stores as Walmart or Target.

Walmart is close to seven times as big as Target in terms of sales, but the two chains are both able to use their size and scale in the market to drive down prices on a variety of merchandise. Department stores like Macy's, Kohl's and JCPenney are much smaller and sell mainly clothes, where a proliferation of options have cropped up online and from specialty brands.

Retail bankruptcies such as Sears and Toys "R" Us and a strong consumer economy have also benefited the big-box chains.

"It's still a very solid and healthy consumer environment," Cornell said. "We're well positioned to take advantage of that."


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