Target used to be a cheap and chic place to shop, but now the retailer is in a sales funk, losing market share to competitors like Walmart, Costco, and Amazon. WSJ’s Sarah Nassauer explores what happened to the beloved box store’s numbers and the strategies executives may be discussing to get back on target. Further Reading: -Target’s Slide From Cheap Chic to Dull Chore Further Listening: -What Went Wrong at Bed Bath & Beyond? -Old Navy Tried to Make Sizes for All. It Backfired. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: Why is Target a beloved shopping destination?
For decades, Target has held a special place in the hearts of American consumers. It's not just a place to shop, it's a cool place to shop.
I mean, part of what I find really interesting about Target is that people have this passion for it.
That's our colleague Sarah Nassauer, who covers retail.
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.
Do you say Target or Target? Because that's going to tell me all I need to know.
Target. No, it ain't. It's Target. Look at the tones.
Target. Now, if you say you're going to Target, I know you're bougie, you're hip, you're with it.
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.
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Chapter 2: What has changed in Target's shopping experience?
But recently, shopping at Target has become a lot less fun. Shoppers have been complaining about empty store shelves, more products being locked up, and long lines at checkout counters. These troubles are having an impact on Target's business. Its sales are flat, and its profits are weaker than expected. The company's stock is down more than 50% from its high three years ago.
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.
Chapter 3: How is Target losing market share?
Losing market share to companies like Walmart, Costco, and Amazon. How big of a problem is that going to be for Target?
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.
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Thursday, December 5th. Coming up on the show, what's going on at Target?
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Target was founded in 1962 as a big-box discount store, but it aims slightly upmarket from places like Walmart or dollar stores.
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.
Target went after customers that were slightly higher income. And it catered to their tastes with products that felt just a little fancier than what you could find elsewhere. One way the company did that was through exclusive collaborations with high-end designers.
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.
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Chapter 4: What were Target's recent controversies?
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.
Target's investors didn't seem to be aware of how bad the company's problems were. Until late last month, when the company reported financial results.
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 had Costco and Amazon, too. But Target...
Welcome back. Shares of Target are plunging today, having their worst day since May 2022. That's after the company posted its biggest earnings miss in two years and cut guidance.
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.
The company said there was some good news in the results. For instance, it said the number of people visiting its stores in the last quarter increased, and that customer surveys showed people are enjoying shopping there more. Target's CEO said the company was facing some, quote, short-term headwinds, that over time, Target would turn things around. Coming up, how can Target turn things around?
After last month's earnings report, Target's CEO, Brian Cornell, said the company needed to double down on what it does well, selling affordable, slightly upmarket products.
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Chapter 5: How did Target's strategies impact its sales?
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.
But Sarah says that target executives have debated whether more drastic moves might be necessary.
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.
One way they could do that is to sell more groceries. You can already buy groceries at most Target stores, things like eggs, milk, and frozen foods. But while groceries are a growing part of Target's business, it doesn't offer as much fresh produce as rivals like Walmart or traditional grocery stores.
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Chapter 6: What are shoppers saying about Target's current issues?
Leaning into groceries would give shoppers a reason to go to Target more regularly, and not just for those fun splurges that can be hard to justify in tough financial times.
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.
Is it possible that we might see Target do more groceries in the short term if they think that more consumers are spending more on groceries than 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.
What's the fear for Target if it isn't able to get itself back on track?
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.
Is it possible that this could be the end of Target? Yeah.
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