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When a company acquires a cute nickname from a customer, it is usually a sign that something is going right. This was true of Target, where Trendy is an American retailer of affordable fashion and home goods. However, in these sentimental times, investors focus on targeting more breeding types.
Target reported a 3.8% decline in quarterly sales at the same store on Wednesday, but is struggling to connect with shoppers to pull back discretionary spending. When they focus on paying grocery bills, few people are in the mood to splurge yet another decorative pillow. It’s a problem for goals as nearly 60% of last year’s sales came from the discretionary spending category. Grocery made up only 22% of total revenue compared to Walmart’s 60%.
The result was a continuous decline in sales at Target’s 1,981 stores. Equal sales in the store fell 5.7%. This leads to the accumulation of products. As of May 3, inventory was $13 billion, a jump of 11% from the same period last year. The company reduced its full-year sales and adjusted revenue estimates.
Target stocks fell 64% from their peak in 2021, reaching their five-year low last month. With CEO Brian Cornell’s contract set to expire this year, the Minneapolis-based company will look like a leading candidate for activist investors. Such agitators will find their case enhanced by the relatively strong performance of Walmart and Costco. Both stocks have more than doubled over the past three years.
Some things are out of control for the target, including the impact of Donald Trump’s tariffs on costs. But the company is not helping itself. The retreat from the diversity initiative has angered some of its customers.
The solution to the sales problem is to call “Tar-Zhay Magic,” a phrase management that is repeatedly used in Wednesday’s calls with analysts. But magic is no longer unique. Walmart and other retailers are catching up and featuring their private label clothing and home merchandise brands for targeted middle and high-income shoppers. Walmart’s same U.S. store sales, excluding fuel, rose 4.5% in the first quarter. US e-commerce sales rose 22% compared to target’s 4.7% rise.
Target’s product mix is heavily distorted by general merchandising instead of food products, meaning sales continue to be under pressure. If it takes longer, seasonal vegetables will be sold faster than seasonal-themed slows.
pan.yuk@ft.com
