WalmartThe stock of is up sharply this week. target‘s shares plummeted.
The competing big-box players are both known for selling a range of products, including groceries, clothing, housewares and kitchenware. Its two CEOs — Walmart’s Doug McMillon and Target’s Brian Cornell — took office in 2014.
But retailers this week issued wildly different outlooks that underscored their differences, particularly in how much they rely on grocery sales.
On Tuesday, Walmart has raised its financial outlook for the year after U.S. same-store sales in the third quarter, they were up 8.2% year over year when fuel is excluded. A day later Target lowered his prognosis for the holiday quarter, comparable sales rose just 2.7%, with executives noting weaker trends throughout the season.
Here’s an overview of four key factors that help explain the split of winning results:
Walmart gets a far larger percentage of its sales from groceries than Target, which helps attract shoppers looking to save money as inflation squeezes budgets.
Grocery accounts for 56% of Walmart’s annual sales, according to the company, compared to only about 20% at Target. Walmart is the country’s top-grossing grocery retailer.
Target also sells groceries, but doesn’t have the same breadth of offerings. For example, stores sell eggs, milk, fruits and vegetables, but don’t have full-service bakeries, meat and seafood counters, or delis where shoppers can get freshly cut turkey and cheese.
More and more customers are turning to Walmart to fill the majority of their shopping lists, said Neil Saunders, managing director of retail consulting firm GlobalData.
In contrast, shoppers are more likely to head to Target to “top up” — to grab some groceries if they’re running for some other reason, such as going to school. B. to get diapers.
Even when shoppers decide not to buy a TV or a new outfit, they still have to keep replenishing the groceries in their refrigerators — a factor that keeps Walmart’s sales consistent.
A man pushes his shopping cart past bread for sale at a Walmart SuperCenter store in Rosemead, California.
Frederic J Brown | AFP | Getty Images
Walmart is known for its mantra of “low prices every day,” and its focus on value has become synonymous with its name. Founder Sam Walton built the company on a no-frills approach aimed at making groceries and other products more affordable.
As Americans become increasingly budget-conscious, the big retailer’s reputation as a discounter gives it an advantage. And the company has demonstrated its ability to use its size and scale to keep prices down.
Walmart’s McMillon often talks about the company being a price leader — and more recently an inflation fighter. For Thanksgiving, the company said it will push prices of foods like turkey and ready-made macaroni and cheese down to last year’s levels.
The low prices attract new customers, including higher-income households.
Over the past two quarters, the company said about 75% of its market share gains in groceries came from households with annual incomes of more than $100,000 a year.
Walmart vs Target
- Grocery share of sales:
Walmart: 56%, Target: 20%
- Third-quarter US same-store sales year-over-year:
Walmart up 8.2%, target: up 2.7%
- Number of US stores
Walmart: More than 4,700, Target: More than 1,900
Source: company records
Target has turned its stores into mini-malls offering a range of “cheap chic” items.
It has launched exclusive own brands such as All in Motion, a trendy but more affordable sportswear brand, and Hearth & Hand, a home decor line created with famed home renovation duo Chip and Joanna Gaines.
It also has stores for popular national brands including Disney, Ulta Beauty and Apple. And there’s a Starbucks where shoppers can sip a latte while browsing.
The range has prompted jokes about “target runs,” where shoppers stop by to buy toothpaste but end up leaving with a lot more.
About 21% of Target’s sales come from unplanned purchases, according to a pre-pandemic study by GlobalData. At Walmart, it’s about 12%.
In an inflationary environment, that spree — and impulse buying — becomes a more difficult sell.
“People are starting to say, ‘Do I really need this?'” said GlobalData’s Saunders. “When people do that, the Target affects more than Walmart.”
Both retailers attract shoppers of different income levels, but Target’s customers tend to be more affluent.
The median household income for Target buyers is about $79,000, according to GlobalData, compared to Walmart’s median household income of about $62,000.
During the pandemic, Target benefited from its middle-income customers suddenly feeling fed up with cash from stimulus checks and the money they weren’t spending on dining out, travel, or sending kids to summer camp.
These buyers helped Target’s sales soar dramatically during the pandemic. Annual sales rose about 36% to $106 billion in 2021, its last full fiscal year as of 2019.
And even in a third quarter that disappointed Wall Street, revenue rose 3% year over year to $26.52 billion.
The growth is being driven in part by investments Target made before the pandemic — like renovating stores, adding curbside pickup, and flipping stores to fulfillment centers for online orders.
But now as people are traveling again, eating out and commuting to the office, Target competes with more spending priorities. The company has also found it more difficult to outperform its own growth.
“It picked a lot of those low-handling fruit,” Saunders said. “Even if it weren’t for that consumer scarcity, it would have been a lot harder to turn a profit.”