As Target struggles to retain its customers, rivals like Walmart are making gains. The Wall Street Journal’s Sarah Nassauer explains what’s behind this retail shift. This episode was produced by Amanda Lewellyn, edited by Matt Collette, fact-checked by Laura Bullard, engineered by Patrick Boyd and Rob Byers, and hosted by Noel King. Transcript at vox.com/today-explained-podcast Support Today, Explained by becoming a Vox Member today: http://www.vox.com/members Empty shopping carts at a Target store in Chicago. Photo by KAMIL KRZACZYNSKI/AFP via Getty Images. Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: Why is Target struggling to retain customers?
Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation third quarter earnings release conference call. The next 68 minutes of that call in November were a mess. Oh, sure, Target's CEO talked about having confidence in our proven long-term strategy, but the company's earnings had missed their mark, their target, if you will.
Americans seem to have fallen out of love with Target.
They just haven't seen their sales progress you know, bounce back at all from sort of the post-COVID era.
But why? Well, on another November earnings call just across town, not literally, Walmart CEO Doug McMillan was gloating.
All three segments of our business performed well. Sales for Walmart International grew 12.4% in constant currency.
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Chapter 2: What led to the rise of Walmart over Target?
Coming up on Today Explained, retail wars. How Walmart ate into Target's business.
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Sarah Nassauer, you are a retail reporter for The Wall Street Journal. I think I first heard the Target name when I was maybe 19 or 20 or 21. And my friend very earnestly said Target. And I was told that it was a fancy thing, like it was an event to go shopping there. So that would have been, I guess, the early 2000s. Where did Target start and how did it expand?
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Chapter 3: How did Target evolve since its inception?
Yes. So the first Target store opened in 1962 in Roseville, Minnesota, which happens to be the town I grew up in primarily. And that was the year that the very first Walmart store opened. opened also to the south in Arkansas. And they were both, you know, open in this era of discounting, sort of the rise of the concept of a discount store.
The difference for Target is that it was a department store. And so Target approached the sort of idea of a big box discount store with a department store's mentality.
Target is a fun place to shop.
which meant from the beginning it was a little higher end. They were really trying to draw people in with specialized merchandise, and they were less concerned about being sort of the very lowest price on a commodity item.
Target is a fun place to shop.
I did not realize it started all the way back in 1962. I would have guessed, honestly, the 80s maybe, the early 90s. How does Target go from being a department store in Roseville, Minnesota in 1962 to being literally everywhere in the country?
Well, you know, over time, really that 80s period where it's in your brain, that is the expansion era of discount stores, right? This was one sort of experiment, right, in 1962, right? It was just an experiment, one store. And they found that it worked, right? And so they gradually opened more and more stores. Eventually, they added food into the mix.
Originally, there was no food in a Target store. And, you know, now they're up close to 2,000 stores around the country.
2,000 stores around the country. And to this day, they're selling the food. They're selling some department store stuff. What else has Target added over the years?
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Chapter 4: What are the key issues customers have with Target?
So people's standards for some of this stuff are a little bit different because it's supposed to be a fun place to shop, right?
Target is a fun place to shop.
Yeah, I want to have a good time. So what is Target doing to try to combat this problem?
We don't know for sure because they aren't defining their problems in this way. We heard them talk about on the last earnings call that their customer service scores over the last quarter are better than they were the same period last year, right? So they say things like checkout wait times, like customers' experience of those moments is improving. But they're not telling us exactly how.
how they're improving or how bad their internal data shows that those things are. They're telling us that it's on a road to improvement.
Net promoter scores for wait times at checkout lanes, satisfaction with team member interactions at both checkout and while shopping, ability to find products, and the cleanliness of our stores are all up year over year.
One thing that they have talked about when questioned by analysts or investors about what they're going to do about the sales decline is they do try to emphasize that they have tried to lower prices this year. They said they have lowered prices on 5000 everyday items earlier this year.
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Chapter 5: Why are customers feeling disappointed with shopping at Target?
We reduced prices on an additional 2,000 items to drive traffic and help celebrate the holidays.
They realize that shoppers want cheaper stuff, right? They want lower prices. So they're focused on that. And then they're sort of matching that with what they call sort of distinctive product, right? They know that people come to them because they want something cool and interesting. So they're trying to redouble their efforts on that front as well.
And so the feeling about Target among people in your profession who know what they're doing is there's still some meh-ness here. There's still some potential problems here. Is this a Target problem or is this a problem for every store that is like Target? Right now, it's a Target problem.
Target is a place that does sort of attract this like, you know, people love to shop there, right? It has like this emotional attachment for a lot of people, especially I think moms that want to like get away from their kids and browse the aisles is a story I hear about often. You know, that's not gone.
We're not in a place where we're like Target's going out of business and they're the next Sears. Like we are not there yet, right? Right. But we are at a place where you see their sales kind of getting out of step with broader trends. And that's the thing I think that like that's why you saw the stock drop 20 percent after earnings. It's unexpected and it's a little out of step.
The Wall Street Journal's Sarah Nassauer. Coming up, Walmart's brilliant strategy. It is stealing Target's higher income customers. It's going organic. It's coming for Whole Foods. It's rolling back DEI. Can one single store appeal to everyone? Walmart's going to try.
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Chapter 6: What strategies is Target implementing to improve sales?
Well, the first thing they did to attract six-figure earners is just to be Walmart at a time when inflation is killing people's wallets, right? It was sort of this moment where I remember during the pandemic when we were all competing to get that big roll of toilet paper. Yes. And everyone was just rushing around like a chicken with their head cut off trying to get toilet paper.
Well, like all the retailers benefited, right? Walmart, Target, everyone saw this huge surge in demand. We're buying throw pillows and like backyard grills and all this stuff, right? And people are flush with stimulus dollars. So there was just like a huge influx of business for a lot of retailers.
Walmart, you know, coming out of that, inflation was such a huge role that lots of high-income households are going to Walmart, right? just to get cheaper groceries. And so what Walmart is trying to do now is keep those folks even when they feel flush again, right? It's about just naturally who they are kind of draws people in down times and target struggles.
But Walmart wants to keep those people now and has done a few things to try to do that.
What has it done? What would I find at Walmart today that maybe I wouldn't have a couple of years ago?
They've worked hard to improve their fresh produce. So just the quality of the frozen produce, more organic food, probably a little bit more distinctive brands like the sort of unique hot sauce that you might not think you could find there. They've tried to go a little bit higher end on their apparel.
The price points can be a little higher on those items than you're used to seeing at Walmart, but still a relatively good deal. They're trying to make those things like home goods and apparel look a little trendier. I don't think that they're quite the same. Target is more universally trendy and stylish when they're trying to design goods. So they're not the same thing.
But if you're going for cheap groceries, you might think, well, this is good enough. And the other thing Walmart is doing is leaning into some of their e-commerce stuff, like buy online, pick up in a store parking lot. Those types of systems have gotten just smoother, and that is appealing to a lot of people as well.
Walmart still does have a traditional kind of customer, and that traditional customer does not make $100,000 or more a year. Correct. Is there any risk of losing your, you know, your sort of legacy customer if you're like, let's go after the richer ones? Yes. Yes, definitely.
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