Quarterly results from Walmart and Target reveal differences among retailers | Catch My Job

WalmartThis week, the stock rose. Target‘s stock fell.

Both rival big players are known for selling a range of products including food, clothing, homeware and kitchen appliances. Both of their CEOs — Walmart’s Doug McMillon and Target’s Brian Cornell — stepped into their roles in 2014.

But the retailers released starkly divergent outlooks this week that highlighted their differences, particularly in how much each relies on grocery sales.

Walmart raised its financial outlook for the year on Tuesday after third-quarter US same-store sales rose 8.2% from a year ago, excluding gas. A day later, Target cut its forecast for the holiday quarter after comparable sales rose just 2.7%, with executives noting weakening trends heading into the season.

Here’s a summary of four key factors that help explain the split in earnings results:

Walmart gets a far greater share of sales from groceries than Target, which helps it attract shoppers looking to save money as inflation squeezes budgets.

Groceries make up 56% of Walmart’s annual revenue, compared with about 20% at Target, according to company data. Walmart is the nation’s largest grocer by revenue.

Target also sells groceries, but it 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 customers can get fresh-cut turkey and cheese.

More shoppers are turning to Walmart to fill most of their grocery lists, said Neil Saunders, managing director of retail advisory firm GlobalData.

In contrast, shoppers tend to go to Target more for “catch-up shopping” — picking up a few groceries when they’re running for another reason, like picking up diapers.

Even when shoppers decide not to buy a TV or new clothes, they’ve had to constantly replenish food in their refrigerators — a factor that keeps Walmart’s sales more stable.

Walmart is known for its “everyday low prices” mantra and its focus on value has become synonymous with its name. Founder Sam Walton built the company on a no-frills approach to making groceries and other products more affordable.

As Americans increasingly watch their budgets, the big retailer’s reputation as a discounter is giving it an edge. And the company has increased its ability to use its size and scale to keep prices low.

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 keep prices on items like turkey and ready-made macaroni and cheese at last year’s level.

Low prices attract new buyers, including more households with higher incomes.

In the past two quarters, the company said about 75% of its food market share gains came from households with annual incomes of more than $100,000 a year.

Target has turned its stores into mini-malls that offer a variety of “affordable chic” items.

He has launched exclusive private labels, such as All in Motion, a stylish yet affordable activewear brand, and Hearth & Hand, a home decor line created with celebrity home renovation duo Chip & Joanna Gaines.

It also has stores of popular national brands, including Disney, Ulta Beauty and Apple. There is also a Starbucks where customers can grab a coffee to sip while they browse.

The range has led to jokes about “Target runs”, where customers stop in for toothpaste but end up leaving with a lot more.

About 21% of sales at Target come from unplanned purchases, according to GlobalData’s pre-pandemic survey. At Walmart, that figure is around 12%.

In an inflationary environment, those shopping sprees – and impulse buys – become a tougher sell.

“People are starting to say ‘Do I really need this?'” said GlobalData’s Saunders. “When people do that, it affects Target more than Walmart.”

Both retailers attract shoppers of varying incomes, but Target’s customers tend to be more affluent.

The median household income for Target shoppers is about $79,000, compared to Walmart’s median household income of about $62,000, according to GlobalData.

During the pandemic, Target benefited from its middle-income shoppers, who suddenly felt flush with stimulus checks and money they weren’t spending on dinner, travel or sending their kids to summer camp.

Those shoppers helped Target’s sales rise dramatically during the pandemic. Its annual revenue rose about 36% to $106 billion in 2021, its latest fiscal year, from 2019.

Even in a third quarter that disappointed Wall Street, its sales continued to rise 3% to $26.52 billion from a year earlier.

The growth was fueled in part by investments Target made before the pandemic — such as renovating stores, adding curbside trucks and turning stores into fulfillment centers for online orders.

But now that people are returning to travel, dining and commuting, Target is competing with more spending priorities. It has also become more difficult for the company to continue to stay on top of its own growth.

“He picked a lot of that low-hanging fruit,” Saunders said. “Now even if it wasn’t for this consumer crisis, it would be much harder to make a profit.”