Target Losing Market Share, Even As Walmart Gains

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In the latest twist on how different customer segments are navigating higher prices, Target’s first-quarter financial results disappointed observers. Sales dropped 3.7%, in line with the company’s earlier forecast. However, net earnings dipped to $942 million, down from $950 million, somewhat below expectations.

And while the company blamed the sales dip on consumers’ continued pullbacks in discretionary purchases, it’s notable that just last week, Walmart posted a 3.8% increase in U.S. sales. Walmart is gaining market share in groceries, especially among higher-income shoppers.

The Minneapolis-based Target says first-quarter revenue dipped 3.1% to $24.5 billion, compared to $24.95 billion in the first quarter of 2023. Comparable store sales fell 4.8%, while digital sales gained 1.4%. Both the number of transactions and average check size declined.

Roundel, Target's retail media network, is “already making a meaningful contribution to our performance,” says Brian Cornell, chair and chief executive officer, in a call webcast for investors. Up more than 20%, “it's the fastest growing part of our business,” he says.

And while beauty continues to be Target’s main bright spot in discretionary categories, apparel sales are also improving, the company says, up 4% compared to the prior quarter. Home and hardline sales continue to be soft, and the company cited research that one in three Americans is currently maxed out (or close to) on at least one credit card.

Adjustments made during recent months, including this week’s announcement of lower prices on more than 5,000 items and new marketing campaigns, are “setting up a return to growth in the second quarter," says Cornell. "Consumers continue to respond to the newness and value that we offer across our shopping experience, and we're pleased with early results from the relaunch of Target Circle.”

Next quarter, it expects sales to be in the range of flat to up 2%.

“We won't be satisfied until we return to growth,” Cornell says. “We're encouraged by the meaningful progress we've seen in recent quarters.”

Some observers are skeptical. “Frequency items such as food and household essentials also suffered a modest decline amid weak unit volumes and lackluster pricing gains, which we think implies market share losses in the category,” writes Noah Rohr, an analyst who follows Target for Morningstar.

“As consumers more acutely prioritize spending on high-frequency goods, we maintain our view that Target’s undifferentiated product assortment and lack of a clear cost advantage relative to other discount retailers make its value proposition precarious.”

Target’s performance “is significantly worse than the overall market, which underlines that Target is losing share,” writes Neil Saunders, managing director of GlobalData, in his note on the results. “The overall sales decline also reverses last quarter’s trend of modest growth. All in all, the picture painted by today’s figures is of a business that has run out of steam.”

GlobalData’s research finds that 62.4% of Target shoppers have cut back on discretionary purchases, even if only marginally. And Walmart, too, has seen people limit purchases in categories like clothing and home.

“Worryingly, however, Target has not been able to make up all this lost ground in the non-discretionary space,” Saunders adds. “While sales results in this category are not terrible, neither have they kept pace with the overall market. From our data, Target has lost some customers and share in grocery, and particularly in household products.”

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