Target's brand appeal is being eroded by rising inflation.
On a Wednesday announcement, the company disclosed a 3.7% drop in sales for stores operating for at least a year during its latest quarter when compared to the year before. This marks the fourth consecutive quarter of sales decline for Target. In pre-market trading, their stocks decreased by around 7%.
The major reason for the sales decline was the reduction in purchases of non-essential items, Target revealed. This trend follows the period of inflation, where customers prioritize necessary goods while cutting back on dispensable purchases. Target's middle-class customers have been affected by rising costs and have shifted their spending from non-essential items such as home decor, electronics, and unnecessary clothing to groceries and basics.
Target has faced struggles due to its product selection and higher prices when compared to competitors such as Walmart and Costco. Target stocks more non-essential merchandise than its competitors, with over half of its offerings being discretionary goods. While the company has been adding more food and essentials to its stores in recent years, it still lags behind Walmart, which generates approximately half of its sales from groceries.
Walmart posted a 3.8% increase in sales last quarter.
To entice consumers back, Target is lowering prices on various items and introducing its own brands. As inflation-conscious shoppers shy away from expensive items, Target has reduced prices on over 1,500 popular items since Monday. These items range from butter to laundry detergent. Additionally, Target recently launched a new budget-friendly brand named Dealworthy, featuring 400 products, including phone chargers, disposable plates, and even underwear, to compete with dollar stores and Walmart.
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In light of these challenges, Target's leadership is now exploring potential business strategies that focus on cost reduction and investing in essential goods to remain competitive. To navigate the current market situation and attract price-sensitive consumers, the company is considering adjusting its business model and investment priorities.
Source: edition.cnn.com
