Target reported quarterly results that were in-line with its plan for the year. While comparable-store sales still declined (-3.7%), that reflects cycling the pandemic’s "super surge" in 2020 (+19% comps) and the post-pandemic spike in inflation. For Q2 2024, Target expects flat to +2% comp increase (i.e., almost normalized).
When speaking about the results and consumer, Target CEO Brian Cornell said, “This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in home and hardlines. And today, even as price levels remain high, inflation rates have moderated significantly over the last few quarters, and we've seen a meaningful improvement in discretionary trends, most notably in apparel, where our performance improved by approximately 4 percentage points in Q1 2024 when compared with last year's fourth quarter. This gives us some optimism that we could see a better balance of spending between discretionary and frequency categories in the years ahead...Our view of the consumer and the environment remains the same as 90 days ago, and we're pleased that Q1 2024 results were firmly in line with our expectations.”
Both Cornell and Walmart noted the importance of convenience to winning market share. For the year, Target’s curbside sales (which increased +13% during the quarter) are projected to be around $9.4B compared to in-store sales of $87B, or nearly 10% of the combined total. Assuming that Walmart’s business is similar in channel mix, that would represent over $30B in curbside sales between the two chains. Given that store delivery is larger for Walmart, that’s over $60B of store-facilitated e-commerce business for Walmart. Given this momentum and size, it is important for CRE operators and co-tenants to consider these dynamics for their centers.
When speaking of Target’s initiatives to connect with consumers, Cornell said, “To help our guests in the face of these pressures, this week, we announced that we've made price cuts on 1,500 frequently shopped items in many markets, and we're planning digital price cuts on thousand more items this summer. These cuts are focused on every items in our food and essential categories and are designed to help our guests make the most of their budgets. Collectively, they'll save our guests millions of dollars...But low prices are only one of the many ways we deliver value...Affordability is an ongoing part of our playbook. It's embedded in our retail fundamentals. And you see that come to life in how we're merchandising our end caps, where we use both our national and own brands, including another new brand called New Order, the way we're leveraging Target Circle to make it even easier for our guests to get the best of Target. This is just an extension of our ongoing focus on affordability, which certainly, in this environment, we know value is critically important.”
Another enhancement to affordability and value is Target Circle, which Cornell said, “Another way is through our Target Circle loyalty program, which we relaunched in April. At well over 100 million members, Target Circle is already one of the largest loyalty programs in the United States. And we've redesigned the program to deliver even more value while making it easier to use and understand. More specifically, we integrated our credit and debit card programs, along with same-day delivery capabilities under a single umbrella, allowing our guests to choose for a range of services and rewards based on their needs and preferences...We are really pleased with the consumer response we've seen so far. Most notably, we added more than 1 million new members to Target Circle in the quarter, and we're committed to making sustained business in this program over the next few years.” Target Chief Growth Officer Christina Hennington noted, “Around half of guests that open the Target app on a given day, make in-store purchases with us that same day. Guests look to our digital platforms for inspiration, helping to plan their next in-store Target run. They use the app while in our stores to check us, compare products and even navigate our stores more seamlessly.” We emphasized “digital price cuts” above because delivering deals via mobile as a means to drive traffic and loyalty is a broad industry trend, especially in consumables, and we’ve written about Albertsons, Kroger, and others prowess with the strategy and technology. For those that have less prowess, 2023 was a difficult year and 2024 will likely be worse (as we pointed out in our analysis on 99 Cents Only). As such for now, having a contemporized mobile app that is frequently used by shoppers is of vital importance to the viability and future success of a grocery brand.
The table below shows the increase in visits to value grocers over the past year. Aldi, Trader Joe's, and Food-for-Less as a group is up 31% year-over-year and club is up 15% (we are using three visits or more to designate a favorite). 17% of all Target visitors also visited an Aldi, Trader Joe's, or Food-for-Less at least three times in the quarter. Many Target locations do not have an Aldi, Trader Joe's, or Food-for-Less location nearby. As such, on average, the Target stores that have one of these in their market would have an increase far more than 31%. Moreover, as Target visits overall were up 2% year-over-year, the increase in visits to these competitors is above that level, or more than “far more than 31%.”
