Target under pressure, hopes value-hungry buyers come to the rescue

Target emphasizes value this holiday season as consumers feel trapped by inflation. At his New Jersey store, signs promoting low-priced items are more prominent than in previous years.

Melissa Repko | CNBC

FAIRFIELD, NJ – In this big suburban store, Goal tries to create some holiday magic for shoppers.

Christmas carols blare out of the speakers. Adult and child sized mannequins display matching family pajamas. Red and green cushions adorn the shelves.

The big retailer is also looking for some of its own magic. The holiday shopping season has become a higher topic for Target after it reported disappointing three-quarter earnings results and lowered its guidance for the current year. Excess inventories have dragged down the company’s profits as sales have slowed.

Target competes in an environment where retailers are having to work harder to entice inflation-weary consumers to make purchases. Its huge profits from the Covid pandemic are at risk as middle- and upper-income shoppers spend money on other expenses, such as shopping. B. Commuting, vacations, and sending kids to piano lessons and soccer camp. Many have already stocked their closets and started looking for expensive items like flat screen TVs, leaving fewer items on the wish list. And even wealthier households like to turn to discounters walmart, known for cheaper groceries.

Other retailers are also under pressure. cabbage, under armor Spirit gape steer everyone through the season looking for new CEOs. bed bath beyond is attempting to revitalize its business as it dwindles its large footprint and workforce. Just about every retailer tries to put their inventory in a cleaner position while juggling both unwanted merchandise and more value-conscious shoppers.

But Target is by far the largest company, with a market value of around $66 billion, and the stakes are high. Target shares are down more than 37% so far this year. That stock slump came after Target missed earnings for the fiscal first quarter in May and warned in June that it would suffer an earnings slump as it devalued commodities.

Target has more than 1,700 toys available exclusively in its stores and on its website this holiday season. It also has a contract for the sale of items from the famous toy brand FAO Schwarz.

Melissa Repko | CNBC

Bigger price tags, fresher goods

During a recent tour of the Fairfield store, Chief Merchandising Officer Jill Sando pointed out a large sign promoting Target’s Fixed Price Guarantee, displays of larger price tags and value-priced gifts scattered throughout the store from 5- Dollar hair ties to $20 necklace earring sets.

“We want to celebrate value,” Sando said. “When we talk about affordable joy, you can see the pride in the work. You can see the pride in the product. We don’t whisper it. We scream it.”

Target is also trying to drown out the noise of a promotional holiday season. Known for cheap chic, the big-box player has struck exclusive deals with brands and created his own fresh ware.

One of these deals is with the traditional toy brand FAO Schwarz. Another is Marks & Spencer, a British retailer that created a range of food specialties such as butter biscuits in a tin shaped like a London bus and tea bags in a collector’s lantern.

And as shoppers juggle Christmas parties and get back into stores, Target wants shoppers’ store visits to be convenient and fun, said Cara Sylvester, chief guest experience officer.

Store associates will rotate the displays and the ends of the aisles to showcase one-of-a-kind items, including make-your-own gingerbread house kits and beauty gift sets. She said the goal is to be a “holiday happy place” where shoppers want to stay for a while and fill their shopping carts.

In the parking lot, Target recently added Starbucks Orders to curbside pickup, Drive Up. In addition to picking up online purchases, shoppers can also grab a coffee without leaving the car. The option began rolling out to 240 stores just before the holidays – with plans to add it to more stores soon.

For customers who have a busy calendar of vacation trips and events, it has more mini Ultimate beauty Shops at its stores with special holiday gift sets, fragrances, makeup staples, and some $5 or $10 gift items. There are 350 of the stores – up from around 100 a year ago.

A difficult problem to shake

But Target doesn’t have the same advantage it did in the early years of the pandemic — a time when it stayed open as a key retailer, becoming a mall alternative and benefiting from customers fed up with stimulus money.

Weekly store traffic at Target is down both year over year and compared to pre-pandemic store traffic in 2019, according to data from Placer.ai, which tracks retail foot traffic. For the week of December 24, 2019, it was down 6.1% year-on-year and 4.7% compared to 2019. 5, the latest available data.

This downtrend has also impacted other retailers including Walmart, Macy’s Spirit best buy. It does not capture whether buyers are spending more or less than in previous years.

Michael Baker, a retail analyst at DA Davidson, said Target is still plagued by a strategic error — making a big mistimed bet on discretionary goods.

Only about 20% of Target’s annual sales come from groceries, according to company documents. Most of the sales come from clothing, household goods and other durable goods – the very items that aren’t selling as well as they used to.

Target ended up with too much of these commodities as supply chain congestion eased and inflation soared. It announced an aggressive plan to stem the tide. However, it faced a new challenge when it announced its third-quarter results in November: a sharp drop in sales in late October and early November.

Baker said investors are hoping to see signs that Target’s sales are picking up as the holiday rush gathers momentum.

“If it gets worse from there, the question is what’s going on with Target,” he said.

With so much uncertainty between inflation and the possibility of a recession, Target’s Sylvester said she doesn’t expect the broader economy to be that “rosy” in the coming year. So, she said, Target will keep emphasizing.

During the Fairfield store visit, Sylvester said Target has a win with its broad mix of merchandise. Shoppers can buy groceries. You can buy cheap workout gear from Target’s own brand, All in Motion, when making New Year’s resolutions. And they can choose from more products in a historically recession-proof category — beauty — as Ulta stores open in more stores, she said.

“How can we double our output and bring some of the joy and magic of Target to our guests who will need them even more?” she said. “Affordable joy shouldn’t just be a holiday thing. That applies all year round.”

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