Walmart and Target prepare for a downturn


After Walmart and Target reported third quarter earnings this week, shares of the former jumped 7% and those of the latter fell 14% – yet both retailers had a similar warning for investors.

Target and Walmart are expecting a modest fourth quarter and discussed early signs that consumers are dramatically changing their shopping habits (again).

An investor asked Target management whether consumer price cuts and spending cuts were driven by sentiment and therefore easily reversed.

Sadly, however, there’s nowhere to hide, according to Target EVP and COO John Mulligan.

“Syndicated data for all retail indicates that in the first week of November, general merchandise contracted 14%,” he said. “This is a very significant change in buying behavior.”

Walmart says it’s equipped to attract value-seeking shoppers — meaning it’s cheaper and the trend is the same.

Walmart’s private label lines, which are typically the cheapest item on the shelf (private label mustard will be cheaper than Hellmann or French brand mustard, for example) have been stable for three years, said John Furner, president and CEO of Walmart.

And then, in March of this year, consumers started switching from private labels to Walmart private labels.

Food and bev

Private label food sales are currently in focus as basic groceries are an important metric for Walmart and Target.

Christina Hennington, executive vice president and chief growth officer of Target, said there are three “inflection points” that Target says are contributing significantly to customers spending more of their wallet. global with Target in all categories.

First, when they become an “omnichannel guest”. As in, they buy on the site as well as in-store or download the Target app. It’s also important to know if they use multiple fulfillment methods (home delivery, in-store pickup and/or in-store purchase) and if they do errands.

“These three are each growing faster than Target overall,” Hennington said. If Target sees growth in either of these inflection points, the company is confident that it can increase customer value without adding customers. Customer acquisition is almost always more expensive than retention.

Food and beverage sales are also closely tied to advertising revenue – which isn’t surprising, considering we’re talking big CPG brands.

For example, Hennington said Target customers are “expecting and expecting promotions more than ever.”

Just like with Amazon, a branded seller who works with the Walmart Connect or Target Roundel platform can either spend more to place items in sponsored ad units or increase their visibility on the platform by lowering their prices. . That’s why Walmart’s advertising revenue, which the company details only once a year in earnings reports, can be recorded either as net sales or as a reduction in cost of sales.

Inflationary pressures and private label trends are also creating more ways for big name brands to work with retailers on co-marketing plans.

Thanksgiving meals are the quintessential example of these partnerships, said Doug McMillon, CEO of Walmart. Walmart offers an assortment of 17 items for $71. “Some of them are branded items,” he said. “I think it’s a great example of how we can scale up and absorb some of that to help families who need it most.”

Target, meanwhile, is promoting a spread of seven Thanksgiving items for $25, most of which are private label products, but with a few Kraft Heinz items in the mix.


Being an omnichannel retailer is an expensive priority right now. Stores need to be modernized for same-day delivery and pickup, and more store associates need to be hired and trained quickly.

Still, the payoff can be significant, Walmart and Target told investors.

“One of the things that excites me most about this business is the opportunity we have to move forward with an evolving business model that truly reflects changing consumer habits,” said John David Rainey, executive vice president and chief financial officer of Walmart.

In short, people shop online and across multiple channels, which is good for Walmart’s profit margin.

Historically, Walmart executives and investors have discussed the relative value of in-store shoppers versus online shoppers, Rainey said. But now the focus is on accelerating Walmart’s share of the overall wallet when someone becomes an e-commerce, pickup, and store shopper.

“A lot of people may come to us for Tide or come to us for bananas, but they may not buy a t-shirt or sweater,” McMillon said. However, it seems that when customers have a hybrid approach between e-commerce and in-store shopping, they bundle their purchases more from one retailer.

Target also prioritizes cross-channel purchases. One of its biggest digital investments right now is expanding Starbucks to its in-car shopping experience. Curbside Starbucks is one of the top requests Target gets from its customers (whom it calls “guests,” while Walmart calls its customers “members”).

“I’m getting milk and nappies, why can’t I get my latte too?” Mulligan said.

Digital sales accounted for 20% of Target’s overall business in the third quarter, while Walmart’s e-commerce penetration was 23%. But physical stores make more than 90% of sales for each.

Retailers want to maintain a high level of in-store satisfaction while simultaneously increasing e-commerce’s share of overall sales, which is good news for investments in advertising platforms.

“When you look at things like advertising or fulfillment services,” Rainey said, “these are areas of our business that are not only growing faster, but have a higher margin associated with them. “

And Wall Street wants to see higher-margin revenue streams, if retailers are going to prioritize low margins on groceries in the name of customer growth.

“Hopefully we look a number of years from now and have a much more diverse and sustainable revenue stream,” Rainey said. “Also, there’s a different multiple assigned to those revenue streams than what exists today.”


About Author

Comments are closed.