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Target under pressure, hopes hungry for value buyers come to the rescue

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Target is emphasizing value this holiday season as consumers feel trapped by inflation. At his New Jersey store, signs point to more advertising of low-cost items than in previous years.

Melissa Repko | @CNBC

FAIRFIELD, NJ — Inside this suburban department store, target tries to create holiday magic for shoppers.

Christmas tunes play on the loudspeaker. Adult and child-size models show off matching family pajamas. Red and green cushions decorate the shelves.

The big-box retailer is also looking for some of its own magic. The holiday shopping season has become a bigger issue for Target, after posting disappointing results for three quarters and reduced its forecast for the current. Excess inventory has dragged down the company’s profits as sales have slowed.

Target is competing in an environment where retailers must work harder to get inflation-weary consumers to spend. It’s enormous covid pandemic Earnings are at risk as middle- and upper-income shoppers spend money on other expenses, such as travel, vacations and sending children to piano lessons and soccer camp. Many have already restocked their closets and bought big-ticket items like flat-screen TVs, leaving fewer items on the wishlist. And even the wealthiest households turn to discounters to like walmart, which are known for their cheaper groceries.

Other retailers are also under pressure. Kohls, under protection and Difference all navigate the season while looking for new CEOs. Bed bath and beyond is trying to revive its business, as it reduces its store footprint and workforce. Almost all retailers are trying to get inventory into a cleaner position, while juggling unwanted products and more price-sensitive shoppers.

But Target is by far the biggest company of them all, with a market value of around $66 billion, and it has a lot going for it. Target shares have fallen more than 37% so far this year. This fall in stocks came after Target in May missed fiscal first quarter results and in June warned it would take a hit to profits as it did marked goods.

Target is bringing more than 1,700 exclusive toys to its stores and website this holiday season. It also has an agreement to sell items from the popular toy brand FAO Schwarz.

Melissa Repko | @CNBC

Bigger price boards, cooler merchandise

During a recent tour of the Fairfield store, Jill Sando, director of merchandising, pointed to a large sign touting Target’s Holiday Price Match Guarantee, displays with larger price signs and low-priced freebies strewn about across the sales floor, ranging from $5 scrunchies to a $20 necklace-and-earring sets.

“We want to celebrate value,” Sando said. “When we talk about affordable joy, you see pride in the work. You see pride in the product. We don’t whisper it. We shout it.”

Target is also trying to cut through the noise of a more promotional holiday season. The big-box player, renowned for its inexpensive chic, has exclusive deals with brands and created its own fresh products.

One of these agreements is with the famous toy brand FAO Schwarz. Another is with Marks & Spencer, a British retailer, which has created a range of specialty food products like shortbread biscuits in a box shaped like a London bus and tea bags in a collectible lantern.

And, as shoppers juggle the holiday season and hit the stores again, Target wants shoppers’ in-store visits to be convenient and fun, said Cara Sylvester, chief customer experience officer.

Store associates will alternate displays and aisle ends to showcase unique items, including DIY gingerbread house kits and beauty gift sets. She said the goal is to be a “happy vacation spot” where shoppers want to stay for a while and fill their shopping carts.

In the parking lot, Target recently added Starbucks orders at its curbside pickup option, Drive Up. In addition to picking up their purchases online, shoppers can also grab a coffee without leaving the car. It started rolling out the option to 240 stores just before the holidays – with plans to add it to more stores soon.

For customers who have a full schedule of vacation outings and events, it has more mini Ultimate beauty Shops inside its stores, with special holiday gift sets, fragrances, makeup staples, and giveaway items for $5 or $10. There are 350 stores, compared to around 100 a year ago.

A difficult problem to solve

But Target doesn’t have the same edge it did in the early years of the pandemic – a time when it stayed open as an essential retailer, became a mall alternative and benefited from cash-strapped customers. stimulus.

Weekly store traffic at Target is down from both a year-over-year basis and pre-pandemic store traffic in 2019, according to data from Placer.ai, which tracks retailer traffic. It was down 6.1% year-over-year and 4.7% from 2019 for the week of December 21. 5, the most recent data available.

This downward trend has affected other retailers, including Walmart, Macy’s and best buy. It does not indicate whether shoppers are spending more or less than in previous years.

Michael Baker, retail analyst at DA Davidson, said Target was still haunted by a strategic mistake – making a big bet on discretionary goods at the wrong time.

Only about 20% of Target’s annual sales come from groceries, according to company filings. Most of the sales come from clothing, home goods and other discretionary merchandise – the very items that no longer sell as they used to.

Target ended up with too much of that merchandise as supply chain shutdowns eased and inflation soared. He announced an aggressive plan to clean up across the overabundance. Still, during his third-quarter earnings call in November, he shared a new challenge: AJ sharp slowdown in sales late October and early November.

Baker said investors hoped to see signs that Target sales are picking up as the holiday rush gathers momentum.

“If things get worse from there, it begs the question of what’s going on with Target,” he said.

With so much uncertainty, between inflation and the possibility of a recession, Target’s Sylvester said she doesn’t expect the economy as a whole to be so “dewy” over the course of the month. coming year. So, she said, Target will keep pushing.

While visiting the Fairfield store, Sylvester said Target could win with its wide array of merchandise. Shoppers can come and shop. They can shop for inexpensive workout gear from Target’s own brand, All in Motion, as they make New Year’s resolutions. And they can choose from more products in a historically recession-resistant category – beauty — as Ulta stores open in more stores, she said.

“How can we double down and bring some kind of Target joy and magic to our customers who will need it even more?” she said. “Affordable joy shouldn’t just be a vacation thing. It’s year-round.”

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