Target Earnings: Doubling Down on Merchandise Strengths to Recapture Lost Marketshare
I do have to hand it to Target in one sense. They know who they are, and they are going to execute that playbook. The company does not look for silver bullets.
The formula is:
- designing better products
- with sharper pricing
- and a better Stores experience
- and an improving delivery & loyalty experience
The situation is:
* declining traffic, marketshare, and thus, share of wallet.
* negative store comps (-4.4% comp sales, and -5.4% store comp sales)
* negative digital comp sales (-0.7%)
* Strong profitability 5.8% operating income margin: 56% higher than Q4 2022.
* Same day services up only 8%. This is super-worrisome as this was previously growing much faster.
Against this backdrop, Target’s formula looks like the turtle and the market (Amazon, Walmart) is the hare. They might win the race in the long run, but you have to believe a lot of things, and in the meantime it’s going to suck. A lot.
Target’s answer is essentially is new merchandise, and an improved loyalty program. We’ll see if it’s enough.
For 2024, Target expects a 0 to 2% sales growth, which is about half Walmart’s growth. In this economy, I’m sure they will take it. In fact, this is similar to Walmart’s formula - grow profits faster than sales. It’s just that Target is growing profits faster than Walmart but growing much slower.
That is a formula for Walmart and Amazon pulling away at the top of retail, while Target niches down to their own brands. In one sense, Target has become a CPG company that happens to be a retailer.
Viewed through that lens, is it only a matter of time before these own brands show up in Walmart and Amazon? Either it is the stupidest idea alive, or spinning out "Target the CPG holdco" is the most brilliant business idea of the next decade.
