Now that the holiday season is over, let's take a look back at an interesting trend for Black Friday, the biggest shopping day of the year. This often-discussed and fretted-about day is of extreme importance to retailers like Target (NYSE:TGT).
According to social-media analytics company Crimson Hexagon, on Black Friday 2013, there were 90,000 tweets about Target. During the 10 days beginning on Thanksgiving, there were 640,000 Target-focused tweets. That's an enormous number, and it looked as though Target would continue to be an underrated, high-quality big-box retailer.
However, with the exception of a few criminals, no one knew what was about to happen. The unfortunate event, of course, was the data breach that affected approximately 40 million consumers. This led to even more Target-focused Twitter (NYSE:TWTR) conversation, but not in a positive way.
The big day
On Dec. 19, 2013, the day the data breach was revealed, Target was mentioned 160,000 times on Twitter. During the 10 days beginning on Dec. 19 there were 894,000 Target-related tweets. The news about the encrypted PINs helped maintain the momentum.
According to Crimson Hexagon, the majority of these tweets were recycled news stories, opposed to opinions. That's why the company has classified Target's social-media sentiment as neutral opposed to negative. However, even if it was mostly the same news stories being retweeted, these news stories still conveyed bad news for customers.
Also consider that three of the top 10 words used in Target-related tweets for the 10 days beginning on Dec. 19 were breach, stolen, and data. These types of terms are not going to lead to more people running out to Target or visiting its website to place orders. All of this bad news, seen by hundreds of thousands of people, increases the odds of sales declines, especially on a comps basis.
As you read this story, you might recognize the power of Twitter. From a social-media standpoint, it's extremely powerful, and it's possible that Twitter will find a way to monetize that power in the future. However, if you're considering an investment in Twitter due to its sway, keep in mind that it's far from the ideal option for Foolish investors, given its lack of profitability and the extremely high volatility of its stock. Right now, it's better suited for gamblers. The good news is that all this negative sentiment about Target means good news for one of its peers.
Revenge of the big-box juggernaut
Target and Amazon.com have consistently been infringing on Wal-Mart Stores' (NYSE:WMT) territory. Despite the increased competition, Wal-Mart has held its own, delivering a little top-line growth and large capital returns to shareholders, which isn't a bad trade-off for any value investor.
While recent Target misfortunes won't help Wal-Mart steal market share from Amazon, it's likely to lead to market share gains for Wal-Mart versus Target. I have written about this several times already, but I will pound my fist on the table until my knuckles bleed.
If 40 million Target customers are in danger of being victims of fraud, then at least some of those customers will lose trust in the retailer and choose an alternative, where they feel comfortable using their debit and/or credit card. These retailers include Wal-Mart, Amazon, and to a lesser extent, Costco. However, the focus here is on Wal-Mart, since most consumers still prefer to shop in person and Wal-Mart stores can be found in, or close to, almost every town or city in the country.
While Target took the high-expectation Titanic approach to the holiday season, Wal-Mart went with the UPOD, or under-promise/over-deliver, alternative. Even if Wal-Mart were to miss expectations, its ability to generate enormous cash flow ($23 billion in operating cash flow over the past 12 months) gives it the ability to increase capital returns to shareholders if necessary. Furthermore, contrary to common perception, Wal-Mart has outperformed Target over the past year in stock appreciation: 18.2% versus 9.9%.
The Foolish bottom line
Target has stumbled in a big way, and any near-term upside surprises would be shocking. While this is still a possibility, investing in Wal-Mart doesn't just present less risk, but the possibility of market-share gains. And even if market-share gains don't take place, Wal-Mart is a cash-flow-generation machine. Therefore, despite significant stock appreciation being unlikely, investors are likely to see methodical and safe returns.