Target Goes More Upscale in Holiday Race With Wal-Mart

When Wal-Mart Stores Inc. announced plans to bring in more trendy clothing and home decor, there was no doubt on Wall Street that the world’s biggest retailer was taking aim at rival Target Corp.

Now, Target is striking back with a new batch of luxury gifts and fashion for the holiday season, and analysts are starting to turn bullish on Target stock again after an upbeat meeting with its executives this week.

With Swarovski crystal-encrusted cashmere blend sweaters and silver cuff links, Target is going even more upscale to counter Wal-Mart’s encroachment into its “cheap chic” stronghold. Wal-Mart has introduced high-thread-count sheets and trendier clothing in a bid to lure higher-income shoppers.

“If we had any doubts about Target’s ability to continue its merchandising leadership in the discount channel, they were removed at [Tuesday’s] analyst meeting in New York,” Sanford Bernstein analyst Emme Kozloff said. “Target continues to raise the bar in product, advertising and branding.”

Target, the No. 2. U.S. discount chain, showcased fashion lines from designers including Italy’s Fiorucci and Britain’s Luella Bartley. The retailer said it planned to launch “limited edition” designer collections that would be available for only a short time in hopes of getting customers into stores more often.

Wal-Mart made a splash this month with plans for a new fashion line called Metro 7. The Bentonville, Ark.-based retailer also displayed its trendier apparel at New York’s Fashion Week last month and took out an eight-page ad spread in Vogue. The move upscale is an effort to lure higher-income shoppers who are less sensitive to the high energy prices that are curbing spending among lower-income shoppers.

Wal-Mart has vowed to aggressively cut prices this holiday season, sparking concerns that rivals’ profits will vanish. But Target maintains its sales and profit forecasts.

Target’s stock rose $2.78, or 5%, to $56. Wal-Mart shares were up 86 cents at $45.99.