Heading into the holiday shopping season, retail giant Target is facing challenges. Recent sales have been disappointing and consumers have been complaining about the store experience, according to reports.
Axios Twin Cities reported that the Minneapolis-based retailer saw its worst earnings report in years for the third quarter of this year. After its earnings report was released last week, the company’s stock fell 21%.
“I’m proud of our team's efforts to navigate through a volatile operating environment during the third quarter,” said Brian Cornell, chair and chief executive officer of Target, per an earnings press release. He added that the company faced “some unique challenges and cost pressures,” that impacted performance.
This week, the Wall Street Journal reported that “shoppers are falling out of love with Target.” It said that after having “long bragged about their cheap-chic Target purchases,” many customers are now “griping about items missing on shelves, long checkout lines and products locked up to prevent theft.”
Earlier this year, Audacy reported on Cornell’s comments related to accusations of price gouging by Target and other retailers as consumers struggled through an extended period of high inflation.
“We’re in a penny business,” Cornell said during an interview with CNBC’s “Squawk Box” in August, when host Joe Kernen asked whether Target has benefitted from price gouging or if the practice has contributed to high inflation. Cornell argued that retail is a more competitive space with smaller profit margins than many other industries.
Target made efforts to slash prices this year, but Melius Research Analyst Karen Short estimated that its prices remain 4%-5% higher than Walmart on essential items, according to Barron’s. That might be one reason why Target’s stock price is down about 6% over the past year while Walmart’s is up 68%.
Reuters also reported that Target’s deals have “failed to attract shoppers to its stores as customers were willing to wait for deals and hunted multiple retailers to find them.”
While inflation has slowed down in the U.S. and the Federal Reserve Bank has started to cut interest rates, prices for consumer goods remain elevated. Audacy reported this week that, due to these increased prices, consumers are focusing on deals this holiday season.
Apparently, this isn’t news to Cornell. He said during a call with investors that “consumers continue to spend cautiously, most notably in discretionary categories.”
“My biggest worry for Target has been marketshare losses versus some of the more cash-rich companies like Walmart and Amazon, who have a competitive edge,” said Dave Wagner, portfolio manager at Aptus Capital Advisors that holds Target’s shares, as quoted by Reuters.
Back in 2017, Gene Munster, the high-profile analyst based in Minneapolis, speculated that Amazon would buy Target, according to Axios. After the recent earnings report, speculation about an acquisition is in the air again.
For example, New York University marketing professor Scott Galloway predicted on his podcast that “Target’s beginning to look like a juicy (leveraged buyout) target,” per Axios. He said Cornell has been “mediocre” at running the company for the past decade and predicted that the CEO could soon be fired.
Axios said Target declined to comment on the buyout speculation.
CFRA analyst Arun Sundaram, an expert cited by Reuters, also had a gloomy outlook for the company going into the holidays.
“Things have taken a turn (for Target) in Q3. And it seems that the softness is going to linger into the holiday season as well,” he said.
However, Cornell has a brighter vision for the season for the retailer, which does remain a popular name in the big box space, according to YouGov. He said during a post earnings call that “we’re seeing a strong response to promotions than we’ve seen in some time yet,” and in the company press release he said “our team is energized and ready to deliver the unique combination of newness and value that holiday shoppers can only find at Target.”
Over the summer, the company revealed that it would partner with Taylor Swift for exclusive Black Friday deals. Last week, a day after the earnings report, Target also announced a new lineup of Black Friday deals – up to 50% on thousands of items – available through Nov. 30.