Since Target Corporation (TGT) shared that it was pulling some LGBQT+ Pride merchandise off its shelves, the company’s stock price has tumbled. Right-wing critics predictably seized the opportunity to gloat: investors were punishing the retailer for being too “woke,” the narrative goes.
However, anyone who thinks that’s the entire story probably needs a reality check. Target investors do face a rocky road this year but that was true even before the controversy over its Pride products.
Consumers are cutting back discretionary spending this year because of a weakening economy, marked by high inflation and the inevitable resumption of student loan payments. The latter factor will lower the amount of money consumers have to buy things.
Target stock actually rose Thursday, gaining 23 cents to close at $131.16.
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Investor Loyalty to Target
But let’s first examine some broader context. Target has long been a supporter of LGBQT causes, which includes stocking its shelves with Pride-centric merchandise every June.
This is nothing new folks. In fact, even Walmart Stores Inc. (WMT) known for its popularity in red, conservative states, carries a healthy amount of Pride products. Where’s the outrage there?
In fact, Target’s open embrace of diversity has been key to its financial success, CEO Brian Cornell said. And the numbers bear that out: since September 2011, Target’s stock price has more than doubled from the low $50s to over $130 per share today.
I picked that specific date as a starting point for a specific reason: it marked a period of a series of enormous strategic and operational mistakes (Target’s website debacle, credit card security breach, failed Neiman Marcus collaboration, and ill-fated expansion into Canada) that would have sunk any company. They were certainly more consequential events than some Pride clothing.
But Target emerged stronger than ever.
Over the past 5 years, the company’s shares have jumped over 80%. The retailer managed the tricky balancing act of growing sales and market share while preserving profits. Under Cornell, the company built its digital operations from the rubble of the website fiasco into a sophisticated omnichannel system that positions the physical store — its greatest strength — at the center.
Broader Retail Industry Faces Tough Economy
Entering this year, the retailer warned investors that the broader economy, in which inflation-wary consumers would cut spending, would negatively impact sales, including the merchandise key to Target’s success: apparel, accessories, and home goods. The company predicted comparable sales for the year would be anywhere from a low single-digit percentage decline to a low single-digit percentage gain.
The retailer managed to eke out small comp store sales gain in the first quarter. But Target said things weren’t looking too good at the end of the quarter and that April was weak. That does not bode well for the second quarter although Target hopes that a strong back-to-school and back-to-college season will help the retailer still hit its end-of-the-year sales targets.
Other retailers are also warning about weak sales. Macy’s Inc. (M) recently cut its annual sales and profit forecasts because of declining demand. The company’s stock is down 12% over a one-month period.
Dick’s Sporting Goods Inc. (DKS) has seen its stock price drop nearly 17% since the start of May. Nike Inc. (NKE) shares have fallen 7%. Even Walmart stock experienced a small decline.
Since the start of May, the S&P Retail Select Industry Index has fallen nearly 7%. Overall, the Dow Jones Industrial Average Index is down for the month period.
However, Christopher Horvers, an analyst with J.P. Morgan, thinks Target’s situation is a little more dire.
"We continue to believe that the consumer is broadly weakening while the share of wallet shift away from goods (51% of [Target's] sales) is ongoing," Horvers wrote in a note, in which he downgraded Target stock from “Overweight” to “Neutral.”
The company “has been giving back share on a [one-year] view and we believe this share loss could accelerate into back to school and linger into holiday given consumer pressures and recent company controversies," he said. (Horvers, however, still likes what he sees from Target over the next three years.)
Target Alienates Key Customer Group
Those “recent company controversies” clearly refers to the LGBQT+ merchandise that Target pulled, out of concern for recent threats to its stores, employees, and customers.
So yes, the controversy has probably weighed somewhat on Target investors. But probably not the way the company’s critics think.
For every person who dislikes Target’s support for LGBGT+ Pride month (and you have to seriously wonder if such people actually/regularly shop at Target), there are loyal consumers who are angry at what they see as a betrayal of its core values.
“Sadly, because they have cowered before the bullying few, as a gay person, I shall no longer shop at Target,” a reader emailed me.
“Shame on Target for bowing to them,” another reader wrote. “Makes me want to avoid Target—they appear weak, intimidated, and easily controlled by the small sector of extremists. Why?”
For investors, the real question is not whether Target is too woke but rather whether its decision to alienate a key customer base will actually impact sales in a year the company already expects to be soft.
