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Woolworths Group Ltd (ASX:WOW) strikes back at Coles Little Shop

If investors were worried about Woolworths Group Ltd (ASX: WOW) beating Coles at its own game, they weren’t showing it.

The Wesfarmers Ltd (ASX: WES) share price dipped a modest 0.3% to $47.49 while the Woolworths share price tumbled 0.8% to $29.60 on news that the latter would try to emulate the success of Wesfarmers-owned Coles “Little Shop” promotion as we head into the all-important Christmas trading season.

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index crashed 1.8%.

Coles had won market share from Woolworths (although that may be temporary) when it gave away miniature toys with every $30 spent in the supermarket.

Woolworths is striking back with a Christmas popup giveaway from Wednesday where shoppers can get cardboard popups of Christmas-related characters when they spend a similar amount at its stores, according to the Australian Financial Review.

I don’t think that is going to be as effective as the Coles Little Shop as the miniature replicas of top selling supermarket products will appeal to collectors more than popups.

Nonetheless, Woolworths doesn’t need it to be as big a success to rain on Cole’s parade as Wesfarmers’ shareholders vote on the demerger of Coles on Thursday with Coles trading as a separate ASX entity on November 21.

Woolworths is already regaining some of its lost market share since the Little Shop promotion ended and is seen as the better supermarket operator.

The Christmas popup promotion only needs to give Woolies’ sales a push and that could be enough to put a decent dent in Coles’ quarterly sales performance during a crucial trading period for all retailers.

That would mark a sharp reversal in the September quarter when Coles posted same-store food sales of 5.1%, the strongest in nearly three years, while Woolies same-store sales retreated 1.8%.

While Coles is giving back some of its strong gains since the promotion ended, it is believed to be launching Little Shop part deux early next year.

However, investors shouldn’t be too worried about supermarkets. It’s the rest of the retail sector that I am a little more concerned about following the profit warning from the likes of Kogan.com Ltd (ASX: KGN) and Lovisa Holdings Ltd (ASX: LOV).

I think it’s going to be a tough Christmas for discretionary retailers and I am underweight on the sector.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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