Despite slashing prices on thousands of items and seeing a slight uptick in customer traffic, inflation-weary shoppers are holding back on purchases
Target $TGT’s (TGT) price cuts and early holiday promotions aren’t delivering the expected results. Target stock plummeted by more than 21% on Wednesday morning after it reported disappointing third-quarter earnings. Despite slashing prices on thousands of items and seeing a slight uptick in customer traffic, inflation-weary shoppers are holding back on purchases.
The weak results led Target to revise its full-year profit outlook, marking the retail giant’s biggest earnings miss in two years as shares fell toward a one-year-low.
Target CEO Brian Cornell told investors during the company’s Nov. 20 earnings call that the company encountered “unique challenges and cost pressures” that impacted its performance, including expenses related to the brief port strike in October. However, he emphasized positive outcomes, such as a 2.4% increase in customer traffic, nearly 11% growth in digital sales, and ongoing expansion in beauty and frequent-purchase categories.
The Minnesota-based retailer missed Wall Street’s expectations, posting revenue of $25.67 billion, about $1.85 earnings per share. Analysts expected it to report $25.9 billion, approximately $2.30 earnings per share.
In May, Target announced plans to slash prices on 5,000 items. In October, the company added 2,000 more products to the list, spanning categories including food and cold medicine. Analysts have noted that while Target hasn’t always been perceived as a value leader, its focus on competitive pricing has helped it gain traction in a more cautious consumer environment.
With lingering inflation continuing to squeeze household budgets, many consumers have pulled back on discretionary spending, impacting retailers like Target. The company’s aggressive pricing strategy has started to win back some of those shoppers. Executives said during the previous quarter that discretionary spending in categories like apparel and beauty saw growth, thanks in part to the price cuts.
Greg Zakowicz, a senior e-commerce expert at software company Omnisend, said in an email that he believes Target is on track for another strong quarter, driven by an extended back-to-school shopping season and ongoing price reductions on everyday essentials.
For now, at least, essentials like deodorant, cold medicine, and undergarments, will remain locked behind glass shelves, according to Cornell. Target isn’t alone in its effort to curb theft. Walmart (WMT) has also adopted the approach and pointed out that its experimenting with smartphone-based access for certain items.
As the holiday season approaches, all eyes will be on Target to see if it can get shoppers back.
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