In an industry as ultra competitive as merchandising, it's important that a company focuses and competes strongly in its niche. Target is a great example of how it beat Walmart to its own game. Walmart succeeded to beat K-mart and others because it played the niche. Target has been doing the same and its shows in the bottomline. Just the fact that it's still showing improving margins and earnings is the hard earned results from its strategy.

Operating margins have gone from 6.3 to 9.6 % over the past ten years. During the same time, Walmart's margin went from 5.5% to 5.8%.

If you try to play the same niche and does not have an edge, it's a losing game. Listen to what the Robert Ulrich, CEO of Target, has to say in the recent Fortune article on Target.

"As Wal-Mart got bigger and bigger, [other rivals] started emulating them more, but they were still trying to appeal to an upscale guest. They'd pile shit in the middle of their aisle and then throw in some merchandise that wasn't the right quality for the store level. It's the classic mistake."

Instead, focus on a niche where the other competitors are not willing to go into.

"If Wal-Mart was striving to be the king of logistics, with enough muscle to force vendors to deliver on price, Target could deliver on a great store experience and a product that was exciting and unique. Wal-Mart's strategy is in many ways more simple than ours, It's more about price and more about mass quantities...ours is more dependent on innovation, on design, and on quality."

Target's strategy shows it on the chart. Investors are rewarded.

Moral of the story is Buy stocks in companies that has a strong focus on niche. Not only that, but they have to do it very well!

Ref: Fortune article

“I probably have traveled and walked into more variety stores than anybody in America. I am just trying to get ideas, any kind of ideas that will help our company. Most of us don't invent ideas. We take the best ideas from someone else.” Sam Walton