Sarah Nassauer

Yeah, you know, there's, I don't know what it is about us humans, but we do like to think of ourselves in these types of competitions.

It's a Goliath versus Goliath story and everyone else suffers in some way.

I remember that one of the editors who interviewed me to take that job described the job to me in terms basically as I would be covering the slow decline of the king of retail. And that is kind of what I thought might happen.

That's right. To me, it's really interesting to have watched Walmart kind of get to this point and that they've actually been able to pull it off. They've actually been able to figure out a way to deliver lots of the things that we kind of want in a daily, weekly way really, really fast. And really the last two years is when they made sort of a big leap to get there.

How did Walmart become the king of retail? Walmart became the king of retail through probably ways that we think about as like traditional retail, right? Building lots of stores, selling things at a lower price generally than lots of competitors, having a really broad selection. So it made it really convenient to just go to one store and buy groceries plus, you know, socks and a broom or whatever.

What are these two Goliaths fighting for? They're fighting for, you know, the dollars of the American consumer. That's our colleague Sarah Nassauer.

His mission was, you know, there were multiple things, but one big challenge was stores were in bad shape. Sales were not great. And the store experience was not that great. Employees were grumbly. People didn't like their produce. They didn't think the prices were really that low anymore. And Amazon was coming, right? And that wasn't even a thing that they had a true defense plan for yet.

There was this tiny test at the time in Denver of an online pickup and delivery grocery service. The idea was you ordered online and then you got your groceries delivered or you picked them up in the store parking lot. Walmart really leaned into the pickup side of that. This idea that you buy online and you pick up in a store parking lot.

That was in part because that's a much more profitable way to sell online than delivery. You're driving to the store, you're doing part of the labor for them.

But they also knew, and there's a lot of data that shows, at the end of the day, shoppers want the most convenient thing. And the most convenient thing is, bring it to my house. We're selling these groceries at the same price online as you get in our stores. That's appealing to people. We have something there. Let's build on that.

Setting up a delivery network was really hard for Walmart because it's so expensive and incredibly complex. There was experiments to see if their own store workers would be the delivery drivers. That created a lot of complexity as well. There were experiments... and a lot of attempts to use third-party services like the DoorDash, the Ubers of the world.

Billions and billions of dollars. And I think probably like on a deeper level, Amazon is such a clear threat. It was just internally over years getting through this like barrier of this is going to be expensive. This is going to be hard. You know, maybe we should have people do pickup, not delivery, right?

All of these internal debates, all of those challenges at some level, they sort of realized the board and executives, if we don't do these things, you know, we're going to lose big here.

That's an interesting question because I feel like it's so illogical for Walmart to see fast grocery delivery as their edge. You know, you associate that with Amazon, right? I think Walmart sees... low prices, having stores all over America, very close to most people that live in the country, and their giant grocery business as their edge.

Yeah, they are fighting for the king of retail title. I think that probably within Walmart, I can sense that there's been a shift from defining, like, internally, culturally themselves as the country's largest retailer by revenue to... the country's most convenient or most helpful retailer, you know, I think there will be kind of an identity process, an identity shift when that moment happens.

They called it Spark, which is named after the yellow star logo of Walmart. And, you know, the idea was that just like with Uber or DoorDash, these wouldn't be Walmart employees. These are folks just that have the Spark app. They can decide whether to take a job and they pull up in the parking lot and a Walmart employee loads up their car.

Or in some cases, they go into the store and like shop the order and drive it to a customer's house for a charge. You know, Walmart pays them and then there's often a tip.

They worked on the mapping technology that they used to determine which areas they can route deliveries to. And that technology became more complex and they were able to integrate census data and Will food spoil? And will the driver want to drive that far?

Sort of more factors and use, instead of zip codes, kind of a pixelated map that allowed them to just sort of get more granular and deliver to more places.

Because food is tough. You know, fresh food is just tough to deal with. It's very low margin. And they don't have grocery stores that have the same level of coverage. So they have to build a fresh network, which is what they are doing rapidly right now that is delivery-based.

And they have had so many different models of trying to figure out how to both sell food that people want to eat and are willing to pay the price for and then get it to people fast because they're a delivery company. It's been trickier for them. They don't have that infrastructure. That is not where they come from. Whereas that is where Walmart and like a traditional grocer, that's what they do.

I mean, Whole Foods is more expensive overall. And also, there's only a few hundred Whole Foods stores in the country, and they tend to be clustered around urban areas. There's 4,600 Walmart super centers, and they're everywhere.

That presents a challenge because a lot of people, when they go grocery shopping, they might want to buy organic milk. but they also might want to buy Coke and they don't want to go to places to do that, right? And right now you can do that at Walmart, but you can't do it at Whole Foods. So one thing that Amazon is experimenting with is this idea of an Amazon, they call it Amazon Grocery.

It's like a little store that's right next to the Whole Foods. And the idea is then you sort of have one location you're going to get all your grocery needs met.

It's increasing sales and they're grabbing market share. And they have to because Amazon is doing the same thing. They might lose their king of retail crown. Yeah, they might still lose their king of retail crown in the annual revenue sense, but they might also see market share slip and sort of be chipped away at in a way that I think a lot of people thought would happen 10 years ago.

What will that mean for them? I mean, I think it, you know, you could look at it as super meaningful or not that meaningful. And there's arguments for both. But I think sort of culturally, internally, and sort of psychologically, it is very meaningful. Bragging rights.

In competing against each other, they've become so incredibly powerful that there are lots of other losers, right? And when Amazon and Walmart grow their revenue by X percent, it's so many more billions of dollars than when a smaller company does it that they're still taking market share from others.

You know, I feel like Walmart is so formidable, as everyone who has sold to them or competed with them knows. I cannot imagine a future where... They're not a big player and a huge factor in what retail looks like in America. As someone who has followed the company for a very long time, fundamentally, I think one of the biggest issues is just

the internal tendency to move slowly because it's such a big place. But obviously, Amazon is a company that is built around technology and e-commerce and AI and all these things that seem like they're going to be important in our future. And Walmart has a totally different history and cultural corporate muscle.

This is not a moment where the economy is so weak that everyone's sales are down, everyone's profits are down, right? That's not what's happening. But they are seeing flat and weak sales. So it means they're losing market share.

I definitely had a few conversations with analysts, sort of questioning, like, okay, well, we didn't know if they were going to be part of this group of retailers like Walmart and Costco and Amazon that are, you know, vacuuming up market share, or would they sort of be victims of those folks? And we're starting to think they're going to be the victims.

I mean, part of what I find really interesting about Target is that people have this passion for it.

Target, unlike Walmart... was a department store retailer. So they were coming at this discounting concept with sort of the lens of a department store. And so Target was sort of, always had a little bit of a, you know, approach that was a little bit more premium, a little bit more about the experience, even though it was a discounter.

And there's this sort of thing where Target has been able to kind of transcend like just utilitarian shopping, right? And be like a fun thing to do. I mean, it's really, it's the Target thing. I'm sure you've heard that term.

Where they would like drop, you know, 200 products from a fashion designer into a store and then people would mob the store and buy up all that stuff and you couldn't get it One of the best examples, or an example that I really like, is back in the day, they did this design partnership with Michael Graves for a teapot that's like a silver teapot and has like a blue handle.

But it was like a sensation, right? It was like a remake of something he had done in a high-end way.

They also, like, rotated these things very quickly, right? So you wouldn't necessarily see the same thing even if you shopped there quite frequently when you went. So there was this sense of, like, finding something really cool and exploration about it. It was this sort of mix of, you know, exciting and fun place to shop with, like, checking things off the list. Like, I need toothpaste.

I need milk. But I also, I found this cool thing. I've talked to friends who are moms and one in particular who is the boss of an office where a lot of moms work. And she's talked about how for years when she asked her mostly female employee base, like, what's your favorite thing to do when she's trying to come up with gifts for her employees? They say, like, go to Target without my children.

And so she gets her employees Target gift cards every year.

And they then made an announcement that they were going to remove a lot of the products. And then that kind of spiraled into more attention and sort of put them in this spot. This was also in the wake of sort of like Bud Light having some of its sales impacted because of working with a trans influencer or posting things.

And they kind of got blowback both from people that didn't like those products and then also people that didn't like their reaction taking those products off shelf. And they did say in the quarters after that that they saw a meaningful drop in the number of people visiting their stores because of that controversy. So it actually did have an impact on sales and traffic.

We're hearing from shoppers that they're basically noticing a few things. You know, that things are out of stock when they want them. That some of the anti-theft measures in stores have made it inconvenient to shop because things are locked up behind glass, for example. Lines are longer at checkouts. The self-checkout is closed down more often, again, as an anti-theft thing.

And maybe it's just not as exciting as it used to be.

And when I talk to shoppers that are upset with the long lines and the anti-theft measures and just not being able to find what they like or think is fun, it's almost with this sense of loss, right? They're kind of sad. One even said something like, it feels like I'm slowly growing apart from an old friend.

Consumers are just buying less stuff and they're having to prioritize needs like food and healthcare and childcare. Inflation is cooling, but prices are still a lot higher than they were a few years ago for things you need.

And that means Target, which tends to sell more of what is called general merchandise, the non-food things, than other retailers, more of its sales are dependent on that kind of buying behavior and people are buying less of that stuff.

People weren't expecting it to be a quarter of gangbuster results, but they were expecting it to be sort of in line with what Target had said. And, you know, a few days before that, Walmart had reported really strong numbers.

And so when they reported then unexpectedly weak numbers, it kind of was like a double whammy of not only was it not what you expected, and also the market isn't aligned with what you reported. And so almost immediately when those numbers come out, as they do, the stock dropped. It dropped over 20% on the day. And there was also several analysts who downgraded the stock.

And it was this idea that, yes, I'm going to like buy whatever, shampoo and socks and, you know, maybe a gallon of milk. But it will be kind of a nice experience because I'm going to Target. I'm going to Target.

He said, one, that a lot of what's going on at Target is about this drop in spending on wants, on discretionary spending, and that discretionary spending will come back and Target's going to be ready. He said that Target, as it has all year, needs to continue to focus on value. They are lowering prices, right? And they continue to focus on that. And this idea...

of what he calls sort of distinctive product. Like that's what they're known for. They need to really lean into that, both to do better now, but also kind of to be ready for the long-term future of the company and maintain that distinctiveness.

Their big existential issue is something that has lingered for decades, which is how do they do well when people aren't spending a lot on splurges? And that's something, if you look at their sales, that has been a pattern over many years. Like the 2008 recession, you know, that was hard for them to come out of. And so their model is really dependent on the distinctive part.

And it seems like they've lost their way a little bit when it comes to experience and the distinctiveness. And so now they're in a position where they need to figure that out and figure out a strategy that works even when people don't have a lot of money to spend.

I had mentioned before just sort of this idea like, what do they do in downtimes? What do they do when people don't want to spend a lot of money on just stuff? Well, grocery plays that role for a lot of companies that sell groceries because you still got to go out for your groceries.

Ever since they opened their first foray into a wider, fresh food, full grocery department in the mid-90s, they sort of have taken steps into grocery and fits and starts. And there's always been tension since 1995 over, should we be a full grocery store or should we not be? Because grocery is lower margin than those other things that you sell in the big box store.

And the more space you give to grocery, you're taking away from other stuff.

Groceries are a growing part of their business. As a percentage of sales, they're up the last few years. And that's somewhat intentional. That's a little different, though, than saying, let's reimagine the store footprint so that it feels more like a grocery store on one side when you walk in. That's a whole other level of investment, and I haven't seen any signs that that's where they're headed.

Well, it means that they're going to continue to kind of underperform versus competitors. They're going to slowly, slowly give up a little bit more of their business to folks that are growing really fast and are already bigger, like Walmart and Amazon. And you see Costco doing really well. So there'll be a slow drip, drip, drip of business over to those other guys.

I don't think we're at the end of Tar-Jay. We're not at the end of Tar-Jay.

I don't think we're quite to that point yet, right? They're not going bankrupt. We're not there. I think, though, we're at a point where people are questioning, how do they get bigger? How do they keep getting stronger if it's difficult for them now, basically? Yeah. And so I think that, you know, Target's at this place where people have those associations with the company for sure.

But it's just, you know, they're thinking about how much groceries cost. And so they need to like go to Walmart and Aldi and other places when they're shopping for groceries. And if it's not that fun to go there, they're going to go there a little less.

So that is a risk for Target and something that if you're on the shareholder investor side, you're watching carefully because that's a little bit the magic of it.

Yeah, I think that's it. I think it's, you know, it just sort of planted a seed to see these bad numbers that were unexpected and out of step with the market in people's minds like, hmm, you know, this could not work out, you know, the way that we thought it would. I mean, Target has been a really strong retailer for a long time. They've had ups and downs, but they've been solid.

And so it just, you know, planted a little seed of doubt for some folks.

I do remember him as a very kind of lanky guy. I also remember him as kind of arrogant. So he had... He had not a chip on his shoulder, but there was just something about his manner that suggested that this job was beneath him, which it may have been because his English was really good. He was clearly very smart. He was clearly very ambitious.

It was a long kind of railroad apartment, right, with two rooms next to each other. And Qinggang would sit in one room and the correspondents were in the other room where all the computer monitors were. And when we wanted to watch the news, we would go into that next room.

We just assumed that they were reporting back on what we were doing.

Yeah. I mean, that was just assumed. They were government-assigned, and I'm sure that they were there to support us, but also to keep tabs on us, I have no doubt. The one concrete memory I have of working with him is of watching a newscast with him and a phrase came up that I didn't know. And so I turned to him to say, hey, can you tell me what they just said?

And he was kind of tipped back in his chair. I mean, he was not leaning forward intently listening to the news. He was kind of tipped back in his chair like, yeah, I can't believe I need to do this. But when I turned to him and said, hey, what did they say? He snapped to attention. He tipped his chair back forward and and told me immediately what they'd said.

So clearly, even when he was just half listening, he got the sense this was a job he could do in his sleep.

When he became foreign minister, a friend of mine who'd been a reporter in China called me and said, do you remember Xin Gong from the UPI Bureau? And I said, yeah. And he said, that's the foreign minister. And I was just flabbergasted that that same kind of gangly, kind of cocky kid was now foreign minister.

Well, my first thought is, why do they feel the need to do this? Is turnover going up? Do they feel they're losing some of their better store managers to other big box stores? The competition for those folks is really, really, really high across retail.

It almost can't be understated how important a store manager is to Walmart. They are the ones who have the most control over the sales and profit of that box, of that store, and those stores are the most important financial entity in the whole company.

It's really hectic. It's not for introverts. And it's, she is expecting the unexpected.

She did several sort of tours of the store where you're literally walking around the store and understanding what's going on in every aisle and what needs to be stocked and where is there a mess and what work needs to be done.

She was always holding her phone because it has a Walmart app that a lot of the workers use to communicate. It's a big store. It's over the size of three football fields. So you can't just like walk up to every worker at every moment and say, you know, can you do X, Y, Z? So they do use this app and walkie talkies. And they're talking to each other that way. They don't have segues? They don't.

have segues. I can see customers maybe not finding that great, but she's constantly in contact, but also constantly walking around the store.

You too. He was recording me. There was a guy who came up filming her, Nicole, and one of her managers who was asking a question about Snoop cereal. Snoop had sued Walmart. We didn't know really what was going on, but it was something related to that. She has to sort of have a calm answer while she's being filmed. What did you learn from spending a day with Nicole?

I think seeing sort of how the chaos can be wrangled was just really, really interesting and eye-opening for me about what it really actually takes to run a store. How so? It's like they're managing all the humans that work for them and with them up and down, managing up their bosses and the people that work for them.

They're managing all the stuff and making sure it arrives at the right time and can be unloaded and is on the shelf. And then they're managing customer expectations and trying to drive sales.

The sales and profit goals for the store are set in corporate offices and then filtered on to her. And she has to meet those month by month, day by day, week by week. And so she's thinking about that for sure, as well as how profitable her store is. What's within her power to achieve those targets? She can decide some of what gets sold in her store.

There's certain things and areas of the store where it's really her and her sort of direct reports that are saying, okay, for our store, for example, there was a little refillable barbecue bottle that she was selling at her store for 97 cents. And when we walked by, she explained, like, this is something that works well in our store. We have a low income core shopper.

I know that this product is a low price point, but a high margin and we can sell a lot of them. So here we put them in this high traffic area at the end of a shelf. You know, she can control some of the product decisions and then she can also have some control over what they spend on labor.

Some of that is decided by corporate, but ultimately it's her and her direct reports that are kind of looking at that minute by minute, day by day.

Yes and no. I've talked to enough store managers over the years to know that I think she is exceptional in some ways in her ability to sort of handle the multitasking that is needed to do the job without losing it. I think she's typical in the sense that she came up in the company. She doesn't have a college degree. She grew up in the place where she is. She knows the community quite well.

I think those things are more typical.

To me, it says that there are these still these sort of like choke points. Jobs that are hard to fill because they're hard jobs and you have to have a lot of expertise over time to do them. I don't think any like college grad could waltz in and be the manager of a Walmart store, right?

And as Nicole herself told me, you know, if you can run a Walmart store, you can run a Home Depot, you can run a Target, you can do other things. And so once someone has gotten to that level at the company, it makes sense that Walmart would really want to keep them.

So Walmart this morning, when it reported earnings, said that right now they're in the process of raising prices because of tariffs and that there will be more to come on their shelves. And that was a pretty significant moment because they're a huge retailer where most Americans shop at least sometimes. And they're just acknowledging that this is coming.

significant for other retailers as well, because Walmart is one of the biggest and you know, they're going to sort of set the tone. So they're saying this, that means other retailers are probably going to have similar approaches. The other aspect of this is that it doesn't mean that just because a

product is imported that that product will become much more expensive though in some cases that will certainly happen. A retailer like Walmart is going to look at the whole store everything they sell and try to manage their profits across that whole swath of goods.

A lot of companies imported ahead of tariffs so that stores and their suppliers are still working through that supply. But Walmart is saying that era is coming to an end.

Executives say they're going to try to do everything they can to negotiate with suppliers or different members that are part of various parts of their supply chain about how they can share these costs and in a way that doesn't eat into anyone's margins too much. But at some point, they're going to pass some of those costs along.

We're going to enter a period here of really fierce negotiations between all those parties because when you raise prices, customers, especially consumers, are still sensitive on prices, aren't necessarily going to buy as much of your stuff.

They said that sales over the holidays were fairly solid. Didn't grow like gangbusters, but fairly solid. But they really hit a note of caution for the current year. And that is a theme we've seen from lots of other retailers this earnings season is, yep, people are still buying, but this year is really unpredictable. And you saw some of the companies, their stocks dipped.

Walmart, for example, even though their sales were great, said they're kind of cautious for the year. And that has investors a little bit spooked about what might come.

It's a slightly different situation in that Walmart is the country's largest grocer and is known for low prices. So they have a little bit of more maneuverability through a period like this. But they mentioned some of the same issues in terms of tariffs, unpredictable consumer behavior is a reason they're a little bit more cautious on their guidance for earnings for the current year.

They've said that people continue to do sort of what they've done. It's not really a big change, but prioritize needs versus wants and that they might look to save money on something like milk and lettuce and cleaning supplies and splurge on something that's more unique like a trip.

We're seeing some of that high-low behavior, but it really depends on what socioeconomic group this shopper happens to be in.

A lot of shoppers that get frustrated when they can't find what they want on the shelf, then they can't buy it, and they took a trip to the store. They didn't order it online. And if the price is higher than they expected or higher than it used to be, that can be a point of disappointment or the checkout line is too long.

And you heard Target noting some of those things in their earnings, that they're working to make sure shelves are better stock, that checkout lines are shorter. They're aware of some of these consumer pain points.

Retailers are saying that consumers are still very cautious and that for many consumers, prices still feel so much higher than they did a few years ago, that that has a real impact on how people are able to buy things. I'm definitely going to be watching some of the government data around consumer sentiment, what retailers say about their prices as tariffs take effect if they do.

And I want to watch these prices really carefully. I'm really curious what's going to happen to the price of an avocado next week.

Thanks for having me.

Thanks for having me.

Retailers said they're not fans and they expect to raise prices. They've said that kind of thing for a while now because they've known that this is a possibility.

And some themes emerged in these earning calls, which was when it comes to China, a lot of retailers had planned for that and have already been dealing with tariffs on goods out of China and have diversified their supply chains and their manufacturing networks with that in mind. But Canada and Mexico are different and a tougher thing for them to absorb those price increases.

Here's reporter Sarah Nassauer again. If you're feeling a little cash-strapped, you might not need the throw pillow or the new jacket or whatever, and so you might forego that purchase. So there's a sense that it's just more discretionary, and that means that as prices overall go up because of tariffs, potentially that Target could, you know, lose some market share.

Target did have an investor day earlier this year after they released earnings. Almost every single reporter, except for a few, tried to get Target to comment directly on whether a negative reaction to how it was handling DEI was having an impact on sales or traffic. And the executives did not directly answer the question. So I could see something like that happening again.

Well, there'll be some question of it, and we'll just have to wait and see how they respond.