Target And Walmart Face Similar Problems, But Only 1 Thrives

(CTN News) – Both Target and Walmart cater to thriftier shoppers, but their results have been very different.

For the fiscal second quarter, Target And Walmart missed Wall Street’s sales expectations. Walmart beat Wall Street’s three-month revenue estimates. Walmart raised its forecast for the year, while Target slashed itss.

There are some fundamental differences between the retailers.

Groceries make up over half of Walmart’s revenue – even in tough times, shoppers buy groceries. Groceries account for almost 20% of Target’s revenue, so it sells clothes, earrings, and throw pillows that people may skip when they’re saving money.

Taylor Swift tickets and European vacations may also boost Target’s affluent customer base. There’s also a possibility that shoppers are trying to balance spending on services with shopping at cheaper places like Walmart or TJX Companies-owned T.J. Maxx, Marshalls, and HomeGoods.

However, Target and Walmart’s contrasting results also show how some retailers are doing better than others catering to fickle consumers.

With its own counterintuitive moves, Wall Street added to the confusion. On Wednesday, it bought Target’s stock and sold Walmart’s stock on Thursday. Walmart shares are up about 10% this year, while Target shares are down about 13%. This might explain the unexpected moves.

Despite their differences, they still have a lot in common. Target and Walmart leaders say Americans are now thinking twice about spending money on nonessential items.

Consumers are still challenged by the level of inflation they’re seeing in food and beverage and household essentials, Target CEO Brian Cornell said on a call with reporters. “So that’s absorbing a bigger chunk of their budget.”

Still, they said shoppers can be persuaded to spend with a good deal or seasonal events.

Target and Walmart’s most recent quarterly results diverged in three key ways:

The winners and losers of online gaming

Some retailers have seen double-digit declines in online sales as shoppers head out again.

Target followed the same pattern in the second quarter. Digital sales fell 10.5%.

Walmart bucked the trend. Second-quarter online sales at Walmart U.S. rose 24%.

The fact that both retailers offer curbside pickup separates them from Amazon.

Besides pickup and delivery, Walmart increased advertising. Also, Walmart praised its third-party marketplace, similar to Amazon’s. Adding vendors to Walmart’s website expands the merchandise assortment and increases profits.

Rainey said customers are also visiting Walmart’s website and app more often. Digital users grew more than 20%, he said on the earnings call. In the second quarter, Walmart’s marketplace had double-digit growth across home, apparel, and hard lines, which includes sports gear and appliances.

Online sales at Target have lagged. However, it’s trying to turn things around.

Chief Growth Officer Christina Hennington said Target’s digital experience will be revamped in three months. She said there will be “different landing experiences, more personalized content, enhanced search functionality, easier navigation, and more.”

Walmart updated its website and app in spring.

Target’s dangling another perk to get more online sales. It’s adding Starbucks drinks to curbside pickup this summer.

Mixed reads on discretionary spending Target And Walmart

Over the past year, people have been hesitant to buy new clothes, gadgets, and other things they can live without.

This has made life tough for retailers, who rely on big-ticket and impulse purchases. It’s more profitable to sell merchandise than milk, bread, and paper towels.

According to Rainey, Walmart’s CFO, things are changing. General merchandise sales dropped low double digits year-over-year in the second quarter, but discretionary goods sales grew modestly. Kitchen tools like blenders and hand mixers are doing well, he said.

Target And Walmart wasn’t as relieved. Food and beauty sales weren’t enough to offset weaker discretionary sales.

There were some exceptions, like a Taylor Swift vinyl and colorful Stanley tumblers, according to Hennington.

Both stores said they’re stocking up on essentials and ordering less discretionary stuff. Target’s overall inventory levels dropped year over year at the end of the second quarter, but discretionary inventory was even lower.

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