Target Earnings: Management Team Has Overstayed Their Welcome
Target is truly missing that “easy money” consumer.
You knew when Target dropped the price on 5000 items 2 days before earnings that bad news was coming. Now bad news has arrived. You know how bad when Target is still comparing its comp sales to 2019. Most retailers stopped doing that two years ago.
How do Walmart and Target compare on price cuts?
Here is the story from Walmart and Target:
Walmart: rollbacks all the time, and everyday low prices.
Target: 5000 price cuts now, thousands more this summer.
Why so slow? This is a five-alarm fire 👩🚒 🔥 🚒
How does Target's eCommerce growth compare to Walmart's?
Walmart: Up 22% y/y
Target: Up 1.4%
Houston, we have a problem. Our digital formula is broken.
What are the overall sales trends for Walmart and Target?
Walmart: Up 3.8%
Target: Down 3.8%
Can you say, share losses? If this pace continues, Target will become a specialty retailer.
How are discretionary items and groceries performing for Walmart and Target?
On discretionary items:
Walmart: Home and general merchandise items are growing 20% y/y in our marketplace.
Target: Discretionary is soft.
On grocery:
Walmart: Consumers are eating out less, even at McDonald’s, and we are seeing more consumers buying groceries.
Target: Consumers are buying fewer groceries.
What they mean is "fewer of our groceries."
Why is Walmart winning right now?
In summary, why is Walmart winning right now? Greater assortment, lower prices. In short, you cannot private label brand your way out of this, i.e. Target’s “dealworthy”.
In the past, Target could get away with carrying national brands, and introduce a number of unique and interesting own brands which were innovative and atypical. It’s not clear the consumer is supporting this.
What does Target's cost structure indicate about its future?
What’s worse, what does this say about Target’s cost structure? When you walk into the average grocery store, the house brand is simply a knockoff made in the same factory. Target goes beyond, but that costs.
To the extent the consumer does not support this extra cost, this means that Target is carrying an unsustainable cost structure relative to its peers. Layoffs would not be surprising to see in its brand organization, or it gets consolidated and/or streamlined.
What are the implications of Target's high cost structure and slow changes?
Target is not easily distracted, but the other side of this coin is that it takes a while to move. High cost structure, and slow changes is a formula for decline.
Are there any bright spots in Target's performance?
1M Target Circle members added in the quarter.
Beauty is a “standout” with low single-digit growth. Yeah, it’s fucking bad.
Roundel is the fastest-growing business. It’s about time.
What are the dark spots in Target's performance?
Have you been reading?
Continued rise of drive-up sales actually hurts their stores. This is really digital sales and I’d love to hear the basket size of these orders vs stores, and typical digital orders.
What is the overall assessment of Target's current situation?
In summary, it’s not good. My view is that management has vastly overstayed their welcome and is ill-equipped to adapt quickly enough to the new world. When Jeff Bezos went out, it’s possible Brian Cornell should have done the same.
This company is simply too damn slow.
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