After binge shopping during the global pandemic, it was perhaps inevitable that consumers would eventually slow their spending.
Indeed, retailers and pundits have predicted that consumers will cut back on purchases this year amid higher prices and worries about a slowing economy.
So far, the data has bared that out. According to Placer.ai, traffic at Walmart Stores Inc. (WMT), Costco Wholesale Group (COST), and BJ’s Wholesale Club Holdings Inc. (BJ) dropped significantly in each month this year compared to the same period in 2022.
Target Corporation (TGT) however, actually saw slight increases in both visits and visits per venue.
On the surface, that’s pretty surprising. You would think that consumers worried about inflation would flock to retailers like Walmart and Costco whose identity is firmly rooted in lower prices, especially on food, general groceries, and gas.
While Target counts itself as a discounter, the company has always focused on the overall experience and value of shopping at its stores, not just low prices. The retailer’s brand appeal depends more on apparel, accessories, and home goods, the very type of merchandise that consumers are supposedly buying less of.
Image source: BRYAN R. SMITH/AFP via Getty Images
Target Does Not Know What to Expect In 2023
First, traffic doesn’t always equal sales. And as Target, Walmart, and Costco due to report first-quarter earnings, we’ll know soon enough whether and to what extent consumers are pulling back on spending.
Target itself seems unsure of what’s going to happen in 2023. For the year, the company said it expects same-store sales to be a percentage decline in the low single digits to a percentage gain in the low single digits.
That’s a pretty broad range.
‘We're planning cautiously, and we believe appropriately, given the economic challenges we anticipate this year,” CEO Brian Cornell told analysts in February.
According to Placer.ai, traffic at Walmart from January to April fell an average of 6.1% each month, including an 8.8% decline last month alone. Traffic at Costco also dropped an average of 6% each month during this period.
Target, however, saw traffic gains in January (3.9%) and February (1%) and broke about even in March. The retailer did suffer a 6.3% traffic decline in April though.
Here’s where the data gets interesting. Fewer people may have visited Walmart and Costco during this time but they spent more time in the stores when they did visit. The median “dwell time” for Walmart and Costco shoppers in the first quarter were 33 minutes and 36 minutes respectively, up 13.8% and 12.5% from the same period in 2022.
And the more time they spend in stores, the more likely they are to buy more stuff during one trip.
“Although consumers may be visiting these chains less frequently – they seem to be doing more with each visit by filling larger carts and drawing out the time between each visit to save on gas costs,” the Placer.ai report said.
Target also enjoyed an increase in dwell time but at a more modest 7%. Still, the company is having it both ways: an increase in both number of visits and number of time spent during each visit.
Target Prizes Long-Term Loyalty
What’s Target's secret? Under Cornell, the company has been playing the long game of late, hoping to increase customer loyalty and engagement while still generating quarterly gains in same-store sales and market share.
“We'll reinforce how the trust and loyalty we've built with our guests shows in our traffic and share gains,” Cornell told analysts. “Given value is absolutely top of mind right now, being able to deliver affordable joy, differentiates us in the marketplace. And that's a clear advantage in the near term and remains our focus over the long term.”
For example, Target rolled out a curbside service in which shoppers can return items at the store without having to leave their cars. While some analysts wondered if the service would mean less store traffic, company executives said they saw the opposite: winning the loyalty of shoppers means they will visit stores more frequently.
In other words, you can say that people are spending more time at Walmart and Costco during each visit because they have to (fewer trips are more efficient). But they are visiting and spending more time at Target because they want to (consumer loyalty).
Target reports first-quarter earnings May 17.
