Target is expecting a muted holiday shopping season, rattling some investors in the retail industry.
The company forecast Wednesday that sales during the final quarter of the year will be flat, and executives lowered its profit forecast from what it was last quarter.
Target also reported a sales increase of just 0.3 percent during its latest quarter, despite repeatedly slashing prices over the last few months to appeal to inflation-battered consumers.
This news sent Target shares plummeting as much as 20 percent in pre-market trading on Wednesday. This put the company on track for its biggest daily decline in more than two years.
CEO Brian Cornell recently told reporters on a call that ‘lingering softness in discretionary categories’ and costs incurred by rushing shipments to prepare for the short-lived port worker’s strike in October both contributed to a weak quarterly performance.
Throughout the summer, most economic metrics indicated that Americans were still increasing their spending despite high interest rates and stubborn inflation.
As the country nears the holidays though, it appears many Americans may be low on funds at a crucial time for the retail sector.
Gerald Storch, the former vice chairman of Target, predicted in October that retail is in for a tough couple of months ahead.
Target expects this holiday season to be weak in terms of sales. It also lowered it profit forecast for next quarter
‘It’s very clear that consumers are running out of money,’ Storch told Fox Business.
‘They’re increasingly stressed by inflation and the exhaustion of their pandemic-era savings… they’re spending less than the growth of inflation,’ he added.
Target, much more than its main competitor Walmart, relies on selling discretionary goods like home decor, electronics and clothing to make a profit.
More than half of Target’s merchandise is discretionary, CNN reported, and these are the exact items consumers are ditching in favor of groceries and everyday essentials.
Meanwhile, Walmart, which gets about half of its sales from groceries, is thriving.
The retail giant clobbered Target in the latest quarter, posting 5.5 percent revenue growth, along with a 27 percent surge in global ecommerce sales.
Walmart also raised its financial outlook, possibly signaling it expects a strong holiday season.
Walmart said it gained market share last quarter thanks largely to ‘upper-income households.’
Households making more than $100,000 a year made up 75 percent of the company’s gains.
Former Target executive Gerald Storch issued a dire warning about the shopping season before his former company released its dismal earnings results
Target executives explained that customers are increasingly searching for deals, and if there aren’t any, they will keep their wallets closed until there are
Target also cited budget-conscious shoppers as an explanation for its sluggish performance.
‘Consumers have become increasingly resourceful and strategic on how they shop,’ Chief Commercial Officer Rick Gomez said.
‘They know deals are out there. They’re willing to search for them, and they’ll wait for the exact right moment to head into our stores or log on to our app.’
Gomez added that the week before Target’s Circle Week, a promotional event last month, sales were slow. But when the event came around, things immediately picked up.
October’s Circle Week was the most successful in the company’s history, with 3 million new members signing up for Target’s loyalty program.
Target began its mission to appeal to cash-strapped customers in May, when it cut prices on at least 5,000 frequently bought products ranging from milk to diapers.
The company stepped it up in October, making 2,000 more items cheaper, including cold medicine, toys and ice cream.
Target said it will have lowered prices on more than 10,000 items by the end of this year.
