Walmart Surges Forward As Target Continues To Fall Back

Shoppers Flock To Stores For Black Friday Deals

It’s a proverbial tale of two retailers: the best of times for Walmart, the worst of times for Target. Both companies are preparing for leadership changes at the top, yet Walmart’s incoming CEO has wind at his back, while Target’s successor faces daunting challenges.

Walmart Riding High

Walmart Inc. third-quarter sales rose 6% year-over-year on a constant-currency basis to $179.5 billion and adjusted operating income advanced 8% constant-currency to $7.2 billion, though it was flat on a reported basis.

On the home front, Walmart U.S. sales were up 5.1% to $120.7 billion, with comparable sales advancing 4.5%. It is attracting more higher-income customers to complement its strength with budget-conscious consumers, as grocery and general merchandise – particularly home, fashion and automotive – performed well.

Sam’s Club, which goes head-to-head with Costco and BJ’s, grew 4.4% to $20.3 billion, excluding gasoline. Membership income to both Sam’s Club and Walmart+ was up nearly 17%.

Internationally, net sales rose 11.4% constant currency to $33.7 billion, led by Flipkart, China and Walmex. And global e-commerce was another bright spot, advancing 27%, as its marketplace continues to gain on Amazon with a growing base of loyal customers.

On the positive results, Walmart raised guidance for the fiscal year to between 4.8% and 5.1% growth and adjusted operating income from 4.8% to 5.1% on a constant-currency basis.

Walmart’s outgoing CEO Doug McMillon will hand over his duties at the end of January to incoming CEO John Furner, current president and CEO of Walmart U.S. McMillon leaves the company on a high note. “We’re gaining market share, improving delivery spend and managing inventory well. We’re well positioned for a strong finish to the year and beyond that,” he said.

He also observed during the earnings call, “The business is stronger in terms of our ability to make it more convenient to shop with us. We’re not just known for price. We’re known for more than that now. The runway looks like a long one to me.”

Commenting on the company’s outstanding third quarter performance, GlobalData’s managing director Neil Saunders observed that the company continues to consistently deliver on the retail basics, like in-stocks, sharp pricing and efficient service, even as it leans into new ventures, such as retail media and AI.

“The mood music coming from the nation’s largest retailer continues to be extremely upbeat,” he said. “Of course, the tune that plays for Walmart may not be the one that plays for all retailers, which is a testament to Walmart’s focus and discipline.”

Target Continues To Fall

While Target is not ready to play a dirge, the company’s soundtrack is clearly downbeat. In this last earnings call for CEO Brian Cornell before current COO Michael Fiddelke takes the reins, the company reported another down quarter. Revenues were off 1.5% to $25.2 billion and comparable sales dropped 2.7%, including a 3.8% decline in comparable-store sales during the third quarter. Operating income declined 19% to $948 million.

This is the company’s third consecutive quarter of declining comp store sales – down 3.2% in second quarter and off 5.7% in first quarter, after calls to boycott the retailer arose following the company’s reversal of its diversity, equity and inclusion initiatives.

However, Target didn’t adjust its previous revenue guidance, as it had already projected a low-single-digit sales decline in the fourth quarter. But it lowered the top end guidance on adjusted full-year earnings per share, from $8.00 to $9.00 last quarter to between $7.00 and $8.00 this.

In his opening remarks before turning over the bulk of the call to his successor, Cornell took a victory lap of sorts.

“All told, this year’s top line is expected to be well over $30 billion higher than the year I arrived. In that 2014 fiscal year, GAAP and adjusted EPS both came in around $4 a share. And the upper end of this year’s expected range for adjusted EPS is double that number,” he said.

Then Fiddelke got on with the call, trying to make the best of a bad situation after achieving results in line with expectations, as poor as they were.

“While our third quarter performance came in as expected, we’re far from satisfied with our current results, and we won’t be satisfied until we’re operating at our full potential,” he said.

Merchandising Struggles

For a company that prides itself on being “design-led,” revenues in two discretionary design-centric categories were off. Home furnishings dropped 7% to $3.9 billion and apparel was down 4% to $3.8 billion. Another loser was household essentials, declining 7% to $4.5 billion.

On a somewhat positive note were food and beverage, up 1.5% to $6 billion, and hardlines, now defined as Fun 101, up 1% to $3.2 billion. Beauty was basically flat at $3.2 billion.

During the third quarter, Target scored wins with the Taylor Swift “The Life of a Showgirl” release and the “Stranger Things” collaboration coinciding with the Netflix series finale, both of which helped reverse the steady monthly downward trend in foot traffic that began in February. At the height of back-to-school season, September in-store traffic was off 5% from previous year, while October visits rose 1%, according to Placer.ai.

While the company isn’t expecting the holiday season to turn around its decline in sales, Fiddelke said Target has a big holiday season planned, including:

Early Black Friday deals starting this Sunday, November 23 through November 29 with 50% off deals in selective tech and video games, toys and small appliances
20,000 new items, double the number from last year and more the half exclusives
Thanksgiving meal for four under $20
Expansive collection of gifts starting at $5, including thousands of toys under $20
Interactive in-store displays featuring Lego, Mattel and Spin Master toys
“Wicked: For Good” collectibles and soundtrack coinciding with the movie’s release
NFL and NCAA apparel collaborations with Champion and Target-exclusive trading cards with Topps
Collaboration with the classic outdoor brand Woolrich in men’s and women’s apparel, home, outdoor gear and food and beverage

Potentially Toxic Starbucks Partnership

Also on the holiday agenda is an exclusive drink offering with Starbucks, available only at Target’s in-store Starbucks concessions. Described as the “perfect companion to add a little bit of holiday cheer to your Target run,” consumer behavioral science expert and co-author of Hacking the Human Mind, MichaelAaron Flicker, said this first Starbucks x Target collaboration is hitting the right notes.

“It is happening at a moment when consumer sentiment is low, discretionary spending is down and shoppers are feeling the emotional weight of higher prices,” he shared.

Pairing a potentially stressful holiday shopping trip with a small seasonal drink indulgence can improve shoppers’ mood and have a positive emotional spillover effect into the shopping experience.

“The small treat makes the big purchase trip feel less painful,” he said, explaining it is called “affect spillover” in behavior science circles.

“Even though the treat has nothing to do with the shopping cart total, the brain doesn’t separate those feelings. Target is strategically bundling a low-cost burst of happiness to cushion the psychological friction of holiday shopping,” he explained.

All of that may be true in any normal year, but right now Starbucks is facing the wrath of its Workers United union in a nationwide strike. As of yet no Starbucks stores in a Target have seen protests – though the new Target peppermint drink launched the same day as the strike was called.

Still, negative feelings toward Starbucks could spill over onto Target, something it an ill afford after the public outrage it faced earlier this year when it rolled back its DEI program.

Enhanced Shopping Experience

To ensure the right products get into customers’ hands, Target has launched a Gen-AI-powered gift finder online and in its app. It will also be joining ChatGPT for what is described as the first “conversation, curated experience” on the app, now in beta test mode.

Target is also turning to AI to help the product design teams to identify emerging trends and predict coming ones, including color, materials, style and product details. And its marketing team will tap AI-driven models to refine messaging and promotions so that they better hit the mark.

In-store, it’s reversing course on store-based fulfillment for online orders in stores with high foot traffic to allow team members to spend more time interacting with customers. It is also remodeling existing stores to create a better shopping experience and enhancing backroom operations to give staffers more time on the floor.

“In stores, we’re making changes to give our team members more time to focus on what matters most, spending time helping our guests. Through enhanced digital tools, we’re reducing time devoted to backroom tasks through more efficient truck unloading and stocking. Every hour we save is being reinvested to allow more guest interaction with a focus on friendliness and service that makes Target Target,” Fiddelke explained.

It’s also introduced a new “10-4” policy to help maximize the friendliness quotient in-store. Within ten feet of a customer, employees should smile, make eye contact, wave, and use “friendly, approachable and welcoming” body language. Within four feet, they must “personally greet the customer and initiate a warm, helpful interaction,” the retailer shared with the New York Post.

This forced friendliness was generally not well-received among Target staffers. “Nothing says ‘corporate joy’ like a mandatory smile,” said a Reddit user.

One Step Forward, Two Steps Back

While Walmart is hitting on all cylinders going into the vital holiday season, Target is caught in what GlobalData’s Saunders describes as a doom loop.

“Target is really struggling and does not seem to be able to climb out of the hole it has dug itself into,” he said. “First, Target is seemingly incapable of boosting sales to any significant degree, continuing a long run of decline. Second, profit and margins remain under significant pressure. Unfortunately, these two factors have created something of a doom loop where the investments needed to boost demand are shunned because of concerns over profits.”

Saunders admits that Target is not a “completely broken brand,” but customers’ affection for the brand is under threat from messy stores, out of stocks, long wait times and locked up products.

“Their goodwill only stretches so far and if Target does not remedy its errors soon, it will drive more customers away and the task of rebuilding will become much more of a challenge,” he concluded.