After facing a boycott last year, Target (TGT) is continuing to monitor the behavior of its customers closely, and what the retailer is currently observing is causing it to cast doubt on its future sales.
In the company’s third-quarter earnings report for 2024, Target revealed that its comparable sales only increased by a measly 0.3% during the quarter, compared to the same time period last year.
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While the traffic in its stores grew by about 2% year-over-year, the amount of money customers are spending per purchase shrunk by 2%.
Related: Target slashes prices ahead of holiday shopping surge
The declines have contributed to Target facing a 12% decrease in its net earnings during the quarter.
Target CEO flags the cause of the concerning trend
During a recent earnings call, Target CEO Brian Cornell stated that consumers are continuing to be more cautious with their spending, despite the company’s recent efforts to lower prices.
“When we assess the consumer and macro environment, we're seeing many of the same themes that have defined the environment for some time,” said Cornell. “Consumers tell us their budgets remain stretched and they're shopping carefully as they work to overcome the cumulative impact of multiple years of price inflation.”
In October, Target lowered prices on over 2,000 items that are in categories such as food and beverages, everyday essentials, and holiday gifts/prep. The move from Target came after it slashed its prices on over 5,000 items in May.
Some areas where Target saw its customers pull back on their spending during the third quarter include cold weather apparel, home goods, and hardline goods (non-personal items such as appliances, electronics, furniture, etc.).
During the call, Cornell claims that consumers are continuing to make “trade-offs” to save on everyday essentials in order to afford “must-have items,” and as a result, they have grown to become more “resourceful.”
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“They're becoming increasingly resourceful in their shopping behaviors, waiting to buy until (the) last moment of need, focusing on deals and then stocking up when they find them,” said Cornell. “As a result, we're seeing a strong response to promotions than we've seen in some time.”
Cornell also claimed that consumers are increasingly “willing to wait for sales and willing to search across multiple retailers to find them.”
Target has low expectations for holiday sales
The current trend in consumer shopping behavior has caused Target to unveil a grim outlook on its sales during the holiday season. The retailer is now predicting that during the fourth quarter of this year, it will have “flat” comparable sales.
“We're focused on planning the business cautiously based on the volatility we've encountered so far this year,” said Target Chief Financial Officer Jim Lee during the earnings call. “Our expectations also reflect some unique attributes of this year's calendar including the loss of five shopping days between Thanksgiving and Christmas and the shift in this year's fiscal calendar after last year's 53rd week.”
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Target’s disappointing outlook comes after a recent survey from the National Retail Federation revealed that holiday spending this year is expected to reach a new record high.
According to the survey, consumers are expected to spend about $902 per person on “gifts, food, decorations and other seasonal items.” This is $25 more than what each consumer was predicted to spend in last year’s survey, and $16 higher than the previous planned spending record of $886 per person in 2019.
As Target expects challenges with its holiday sales, it is continuing to roll out deals and discounts in order to help attract customers back into its stores. One of the deals that the retailer is promoting involves the return of its Thanksgiving meal deal which is now $20. Last year, the meal was priced at $25.
Target is recovering from a major boycott
Target’s recent struggles with its sales came after the retailer faced a massive boycott from consumers over its pride collection during the summer last year.
Conservative consumers took issue with the company selling transgender swimsuits and marketing LGBTQ merchandise toward children. The boycott appears to have contributed to the company facing a 5.4% decline in sales during the second quarter of 2023.
Ever since the controversy, Target has been on a rocky road to recovery. To avoid blowback from consumers, the company even scaled back its pride collection this year, which angered some of the designers of the collection.
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