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Associated Press
Though Target struggled early on in the economic downturn, it has positioned itself in direct competition with Walmart, which caters to lower-income shoppers. Both will stick to their respective client bases this holiday shopping season.

NEW YORK — This holiday season, the biggest discount chains in the U.S. will tell the tale of two very different shoppers: those who have and those that have not.

Wal-Mart Stores Inc., the world's largest retailer, on Thursday acknowledged that its low-income shoppers continue to struggle in the economy when it issued an outlook for the fourth quarter — which encompasses the holiday shopping period — that fell below Wall Street estimates. On the same day, its smaller rival Target Corp., which caters to more affluent shoppers, said it expects results during the quarter to exceed projections.

The two discounters offer valuable insight into how Americans will be spending in November and December, a period that's traditionally the busiest shopping period of the year. Some merchants depend on that time of year for up to 40 percent of their sales, but economists watch it to get a reading on the mood of the American shopper.

Walmart and Target's forecasts seem to solidify a trend that has been taking shape over the last several years during the economic downturn. Well-heeled shoppers spend more freely as the economy begins to show new signs of life, while consumers in the lower-income brackets continue to hold tight to their purse strings for discretionary purchases even as the housing and stock markets continue to rebound.

Indeed, while both Walmart and Target are discounters, they cater to different customers. Walmart, which says its customers' average household income ranges from $30,000 to $60,000, hammers its low-price message and focuses on stocking basics like T-shirts and underwear along with household goods. Meanwhile, Target, whose customers have a median household income of $64,000 a year, is known for carrying discounted designer clothes and home decor under the same roof as detergent and dishwashing liquid.

Even the tone the retailers struck on Thursday was different. Charles Holley, Walmart's chief financial officer, told reporters that the retailer's consumers are still worried about high unemployment and higher basic costs for staples like gas. He said he worries that they also have some anxiety over big tax increases and spending cuts — known as the "fiscal cliff" — that will take effect in January unless Congress and the White House reach a budget deal.

"Macroeconomic conditions continue to pressure our customers," Holley said.

Meanwhile, Gregg Steinhafel, chairman and president of Target, told investors: "We feel good about our ability to deliver inspiring merchandise, most-wanted gifts, and unbeatable value, while also generating expected profitability."

The fortunes of the two retailers have changed during the economic downturn. In fact, throughout most of it, Target and Walmart have played a bit of musical chairs.

Walmart at first fared well during the downturn as affluent shoppers traded down to its stores. But the company eventually began to lose some core shoppers in the process.

The company, based in Bentonville, Ark., posted nine consecutive quarters of revenue declines in its U.S. namesake business as it moved away from its lowest prices strategy and got rid of thousands of basic items its core customers covet in an overzealous effort to de-clutter the stores.

Walmart's namesake U.S. business, which began to re-emphasize low prices and restocked shelves, reversed the decline last year. The business has recorded five consecutive quarters of gains in revenue at stores open at least a year, an indicator of a retailer's health.

But its momentum has slowed. Walmart said Thursday that its namesake U.S. business had a 1.5 percent increase in revenue at stores open at least a year. That gain is short of the 1.8 percent increase Wall Street expected. It's also a slowdown in growth from the 2.2 percent gain the business posted in the second quarter and the 2.6 percent increase it had in the first quarter.

"It shows that its consumer is still struggling," said Ken Perkins, president of Retail Metrics, a research company.

Target, based in Minneapolis, initially struggled during the economic slowdown. Its fashion-forward image hurt it during the downturn as people didn't perceive Target as having the best prices.

But the retailer expanded its food offerings and began to emphasize low prices in its advertising — two things that put it in direct competition with Walmart. It also started a 5 percent discount program for those who use its branded credit or debit cards.

But its focus on prices and groceries cost it some cachet, and performance has been choppy. The latest results show that Target seems to have found the right balance between offering low prices and boosting its offering of fashion merchandise. Revenue at stores open at least a year rose 2.9 percent, roughly in line with Wall Street estimates.

This holiday shopping season, both discounters will catere to their different customers.

Walmart last week said it will offer deeper discounts and a broader assortment of merchandise.

Target, on the other hand, is trying to appeal to higher-end shoppers.