Today, Explained: Target Misses the Mark

Episode Overview

In the December 9, 2024 episode of Today, Explained, hosts Sean Rameswaram and Noel King delve into the recent struggles of retail giant Target Corporation. The episode, titled "Target Misses the Mark," explores Target's third-quarter earnings miss, the competitive pressure from Walmart, and the broader challenges facing the retail sector. With insights from Wall Street Journal retail reporter Sarah Nassauer, the episode provides a comprehensive analysis of why Target is underperforming and how Walmart is capitalizing on this downturn.

Target’s Third Quarter Earnings Miss

Earnings Call Disarray

The episode opens with Noel King referencing Target's chaotic third-quarter earnings release conference call:

Noel King [00:03]: "Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation third quarter earnings release conference call. The next 68 minutes of that call in November were a mess."

Despite Target CEO’s confidence in the company's long-term strategy, the earnings report revealed disappointing performance, signaling that American consumers are drifting away from Target.

Lack of Sales Recovery Post-COVID

Sarah Nassauer explains that Target’s sales haven't rebounded from the post-COVID era as expected:

Sarah Nassauer [00:26]: "They just haven't seen their sales, you know, bounce back at all from sort of the post Covid era."

Walmart’s Competitive Edge

Walmart’s Robust Performance

In stark contrast, Walmart's CEO Doug McMillon paints a rosy picture of his company's performance:

Doug McMillon [00:45]: "All three segments of our business performed well. Sales for Walmart International grew 12.4% in constant currency."

This sets the stage for a discussion on how Walmart is encroaching on Target’s market share.

Retail Wars: How Walmart Is Gaining Ground

Sarah Nassauer provides historical context, tracing Target’s origins back to 1962 in Roseville, Minnesota, and contrasting it with Walmart’s establishment in Arkansas the same year. While Target positioned itself as a higher-end department store with a trendier product mix, Walmart maintained its identity as a low-price leader and the largest grocer in the U.S.

Sarah Nassauer [03:18]: "Target is a fun place to shop."

This distinction initially set Target apart, attracting a slightly higher-income shopper base seeking a more enjoyable shopping experience compared to Walmart’s purely cost-focused approach.

Current Challenges Facing Target

Inflation and Consumer Spending

The episode highlights how persistent inflation has strained consumers' budgets, making discretionary spending on items like throw pillows and candles less feasible. Target, which relies more heavily on these discretionary purchases, finds itself at a disadvantage compared to Walmart, which benefits from steady grocery sales.

Sarah Nassauer [06:25]: "They tend to have a little bit of a disadvantage in that environment because more of their sales are based on what they call discretionary items."

Operational Missteps and Market Share Loss

Target's recent earnings showed flat sales while competitors grew, indicating potential operational missteps and a loss of market share. Customers have reported issues such as out-of-stock items, longer checkout lines due to new anti-theft measures, and a perceived decline in product excitement:

Sarah Nassauer [08:36]: "A lot of them are saying sort of a combination of things. One is, hey, I've just, you know, noticed some products are out of stock... People are talking about longer checkout lines..."

Customer Sentiment

Interviews and field reports reveal a growing discontent among Target shoppers, with frustrations over product availability and the shopping experience becoming less enjoyable.

Customer [09:23]: "I feel like we're witnessing the downfall of what used to be a really nice grocery store into something that's more like a Walmart."

Walmart’s Strategic Moves

Attracting Higher-Income Shoppers

Walmart is actively courting higher-income customers by enhancing its product offerings and improving the quality of its fresh produce and apparel:

Sarah Nassauer [21:12]: "They've worked hard to improve like their fresh produce. So just the quality of the fresh produce, more organic food, probably a little bit more distinctive brands..."

Walmart's introduction of private label brands like BetterGood, which includes plant-based cheeses, exemplifies their strategy to appeal to more affluent shoppers seeking quality without compromising on price.

Amazon Q [19:11]: "Walmart just launched a new private label brand called BetterGood. BetterGood has a really interesting lineup of products including plant-based cheeses."

E-commerce Enhancements

Walmart has also strengthened its e-commerce capabilities with smoother online ordering and in-store pickup options, making it more convenient for customers and attracting those who prefer shopping online.

Sarah Nassauer [21:07]: "They're trying to lean into some of their e-commerce stuff like buy online, pick up in a store parking lot. Those types of systems have gotten just smoother..."

Walmart's Response to DEI and Market Positioning

Rolling Back DEI Initiatives

In a significant move, Walmart announced the rollback of its diversity, equity, and inclusion (DEI) initiatives due to pressure from conservative activists. This decision includes discontinuing the term DEI in favor of "belonging" and phasing out related programs:

Sarah Nassauer [24:04]: "They are now using the word belonging. That doesn't mean that the policies change necessarily, but the corporate titles and the report that you get every year now has the word belonging in it."

This strategic shift aims to align with changing societal and political landscapes, though it raises concerns about customer and employee reactions.

Impact on Corporate America

Walmart's decisions have a broader impact on corporate America, potentially influencing other companies to reconsider their DEI efforts. However, the immediate concern for Walmart is maintaining shopper loyalty and employee satisfaction amidst these changes.

Takeaways and Future Outlook

Target’s Struggle to Differentiate

Sarah Nassauer concludes that Target’s long-standing challenge is maintaining its distinctive, enjoyable shopping experience during times when consumers tighten their budgets. The emotional attachment customers have to Target is a double-edged sword; while it fosters loyalty, it also makes it difficult to adapt when the economic climate shifts.

Sarah Nassauer [25:16]: "If your thing is selling cheap groceries like Walmart or an Aldi or someone else like that, it's easier to have kind of a steady Eddy business... Target is in a place where what people love about them is this fun thing..."

Walmart’s Growth and Strategic Positioning

Walmart's aggressive strategies to attract higher-income customers and enhance its product offerings are effectively drawing business away from Target. By balancing lower prices with improved quality and diverse product lines, Walmart is positioning itself as a versatile retailer capable of catering to a broader demographic.

Long-Term Implications for Retail

The episode underscores the ongoing ebb and flow within the retail sector, where companies must continuously adapt to changing consumer preferences and economic conditions. Target’s current struggles highlight the importance of flexibility and innovation in maintaining market relevance, while Walmart’s success illustrates the benefits of strategic expansion and customer base diversification.

Conclusion

"Target Misses the Mark" offers a detailed examination of Target’s recent performance issues and how Walmart is leveraging its strengths to capture a larger share of the retail market. With actionable insights from Sarah Nassauer, the episode provides listeners with a nuanced understanding of the competitive dynamics shaping the American retail landscape.

Notable Quotes:

• Noel King [00:03]: "The next 68 minutes of that call in November were a mess."
• Sarah Nassauer [06:25]: "They tend to have a little bit of a disadvantage in that environment because more of their sales are based on what they call discretionary items."
• Doug McMillon [18:08]: "Walmart's super inflation buster sale blasts through the inflation barrier with big discount savings on hundreds of everyday items like Conair's, Lots of curls."
• Sarah Nassauer [25:16]: "Target is in a place where what people love about them is this fun thing, this like I am just going to go to Target and browse the aisles and it's almost self care."

Produced by Amanda Llewellyn, Edited by Matthew Collette, Fact-Checked by Laura Bullard, Engineered by Patrick Boyd and Rob Byers. Hosted by Noel King.