Article

Target Continues to Serve its Customers Despite an Increasingly Challenging Backdrop

By
Shalmali Prakash
January 30, 2023

At A Glance

  • Target's top line continues to profit from growth in guest traffic and unit share gains across all of the company's main categories
  • Target undertook decisive inventory actions to supply what its consumers have come to expect from the brand
  • Third quarter traffic growth of 1.4% over 12.9% growth in the previous year
  • Target also reported a 1.3% gain in average ticket
  • Target is making adjustments in real-time with agility and flexibility

The third quarter (2022) results have demonstrated how Target Corporation has continued to serve its guests despite an increasingly challenging backdrop. Target's top line continues to profit from growth in guest traffic and unit share gains across all of the company's main categories as a result of the growing level of trust that Target has built with its customers over the last few years.

This is especially noteworthy since consumers are exhibiting more signs of stress and are deferring discretionary purchases. It also highlights the importance of having a well-balanced multi-category portfolio, enabling Target to meet the constantly-evolving demands and wants of its customers.

In the current climate, Target continues to profit from excellent growth and market share increases in the categories that its guests are currently gravitating toward the most, including Food & Beverage, Household Essentials, and Beauty. 

Based on the sudden shift in consumer purchasing habits that appeared near the end of the first quarter, Target had previously stated its desire to take prompt inventory decisions at the beginning of the second quarter of 2022. These efforts were taken to guarantee that Target could continue to supply what its consumers have come to expect from the brand. More precisely, the initiative aimed to free up space in Target stores and time for the staff to keep providing guests with fresh inventory and a dependable, uncluttered shopping experience, positioning the company to achieve solid growth in Q3 2022.

One of the factors influencing comparable sales was third quarter traffic growth of 1.4% over 12.9% growth in the previous year. As customers continue to rely on Target as a quick, dependable one-stop shop, Target also reported a 1.3% gain in average ticket in addition to traffic growth. 

Stress levels among consumers are increasing as a result of persistently high inflation, quickly rising interest rates, and a significant level of uncertainty over their future economic prospects. Many consumers have turned towards borrowing or depleting their savings this year to manage their weekly budgets due to high rates of inflation that are reducing their purchasing power. However, for many consumers, those options are also becoming scarce. As a result, Target consumers are becoming more price sensitive, more interested in and receptive to promotions, and hence, less likely to make full-price purchases.

Hence, Target had very different trends within the quarter even though the total Q3 comp growth was nearly equivalent to the performance in the second quarter. More specifically, Target experienced comp growth of well over 3% over the first two months of the quarter before decelerating to just under 1% in October.

Target wants to draw attention to its simple and attractive promotions, its free in-store pickup and drive-up services, as well as its new, accessible payment alternatives. Target will, of course, offer extra options for savings through its RedCard and Target Circle programmes, neither of which has a membership fee.

In light of the altered expectations for both the top and bottom lines in the fourth quarter, Target is making adjustments in real-time with agility and flexibility while also taking current patterns into account. “To create additional capacity for us to continue investing in long-term growth and market share while also delivering strong bottom line performance, we are undertaking an enterprise-wide effort to identify opportunities to simplify and enhance the efficiencies of our business. This effort is not about slashing resources, instead, it’s about optimizing our operations to match the scale of our business,” said the Chairman and CEO of Target, Brian Cornell.

Additionally, it is important to note that Target’s owned brands continue to outpace national brands across the portfolio, expanding at double the rate of the entire company in the third quarter. Target's exclusive owned brands offer excellent quality at exceptionally affordable pricing thanks to the company's unique, industry-leading in-house design and sourcing capabilities. This combination is fantastic at any time, but it is never more so than in an inflationary environment.