Increasing inflation is damaging the appeal of Target's 'Tar-zhay' brand.
Target announced on Wednesday a 3.7% decline in sales at stores open for at least one year during its latest quarter compared to last year, marking the fourth consecutive quarter of sales decreases. Shares of the company dropped by around 7% in pre-market trading.
Target highlighted a drop in sales in discretionary categories as the primary reason for the decline, a trend that has continued throughout the spike in inflation where customers prioritize necessary items while cutting back on superfluous purchases.
As a leading indicator of consumer spending habits and the retail industry, Target's core middle-class clientele has been impacted by higher prices and adjust their spending accordingly. They're opting for necessities such as groceries and everyday essentials instead of discretionary goods like home decor, electronics, and non-essential clothing.
The drop in sales at Target can also be attributed to their merchandise mix and higher prices when compared to rivals like Walmart. Target stocks more non-essential merchandise than competitors like Walmart and Costco. Despite increasing its food and essential offerings in recent years, Target still trails behind Walmart, who makes up around half of their sales from groceries.
In contrast, Walmart reported a 3.8% increase in sales last quarter.
To regain shoppers, Target is reducing prices on several popular items and introducing a new house brand called "Dealworthy." This budget-friendly collection includes over 400 items, from phone chargers to disposable plates and even underwear. The discounts on popular items began on Monday, including butter and laundry detergent.
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In an attempt to attract customers back, Target is investing in a new budget-friendly house brand called "Dealworthy," offering discounts on popular items. Due to increasing inflation, many businesses, including Target, are facing challenges with their investing strategies, as customers prioritize necessities over discretionary purchases.
Source: edition.cnn.com
