Target Corp. is charging rival Kmart Corp. with false advertising, claiming in a lawsuit filed Tuesday that the prices in Kmart's "Dare to Compare" campaign are wrong 74% of the time.
The Kmart promotion uses in-store signs to compare Kmart's prices on specific items with those of its competitors.
In its complaint, Target said a market research firm it hired found numerous errors, including mistakes in reporting Kmart's own prices as well as listing comparisons for products Target doesn't sell.
Target said it notified Kmart of its allegations but filed suit when Kmart continued to promote incorrect prices.
"Kmart is lying to consumers," said James T. Hale, Target's executive vice president and general counsel. "Its 'Dare to Compare' advertising is based on deceit. Having ignored the responsibility to be honest with consumers, Kmart now should be held accountable for its reprehensible behavior."
Troy, Mich.-based Kmart, the nation's second-largest discount retailer behind Wal-Mart Stores Inc., said in a statement that the company is committed to the campaign.
"It is unfortunate when a competitor has to resort to needless, costly litigation when they discover that they are falling behind in pricing in the retail arena," Kmart said in an unsigned statement. "Increases in transaction count and customer count show customer acceptance of an improved pricing and shopping environment at Kmart."
The probe began when Target employees said they noticed the discrepancies. In one case, Hale said, Kmart listed its Fruity Pebbles breakfast cereal for $1.99 and said nearby Target stores priced the same product at $2.89.
Target, however, actually priced Fruity Pebbles at $1.99, Hale said.
"I think if somebody is not playing fair, Target has every right to sue them, particularly after they asked Kmart to cease and desist," said retail analyst Wayne Hood, who covers both companies for Prudential Securities in Atlanta.
In an audit of 98 Kmart stores, market research firm Leo J. Shapiro & Associates of Chicago found that almost three-quarters of the time, the in-store signs had one or more errors, including listing its own price incorrectly; listing the wrong price for a Target item; or making a comparison with an item Target does not carry.
The audit, which took place from July 31 to Aug. 8, sent employees of the research firm to stores in five cities: Los Angeles, Atlanta, Detroit, Miami and Minneapolis-St. Paul. Of 622 signs evaluated, Target said, 553 contained errors.
Target, which also operates Mervyn's California, Marshall Fields and Dayton-Hudson stores, on Tuesday reported a gain in net income of 5% for its most recent quarter. Pre-charge earnings rose to $271 million, or 30 cents a share, compared with $258 million, or 28 cents a share, in the second quarter last year.
Kmart will report results Thursday.
On the New York Stock Exchange, Target shares fell $1.74 to close at $35.36, and Kmart shares fell 48 cents to close at $12.32.
Bloomberg News was used in compiling this report.