Walmart last week suggested that shoppers pinched by inflation and uninterested in promotional gimmicks are responding to everyday low prices. Target this week proved it.
Three months after announcing plans to lower prices “on 5,000 frequently shopped items,” the results are in. Target yesterday reported a solid increase in sales, in-store traffic and online purchases, which it attributed to its customers’ search for savings.
“We feel great about the reaction that we’re seeing from the consumer based on the 5,000 items where we’ve seen price reductions,” Target CEO Brian Cornell said in a call with reporters. “Consumers are responding to our offerings in an environment where they’re focused on value.”
“The 5,000 price reductions across everyday items was incredibly well received,” Chief Commercial Officer Rick Gomez echoed. While neither executive said how long those price reductions would stay in place, or whether more are on the way, Gomez promised Target would “continue to lean into value on our Food & Beverage business, not just through everyday pricing, but also through personalized promotions on Circle.”
In addition to lowering prices, Target also revamped its Target Circle loyalty program a few months ago, so shoppers no longer have to hunt for deals – most offers are now applied automatically to your purchases, without you having to pre-select them. And “because of the invaluable insights we gained through Target Circle,” Gomez said, “we were able to offer four times more personalized offers as compared to a year ago.”
Target’s results come a week after rival Walmart also reported an increase in sales, due in part to more than 7,000 price cuts and a commitment to maintaining everyday low prices on everything else. “Walmart’s second quarter earnings highlighted that value and convenience are resonating with consumers,” Bank of America analyst Robbie Ohmes wrote in a note to investors. So he and others believe Target is making the right move in emphasizing lower prices and simple promotions. “Target’s retooling of its value position is a sensible response to the current environment, and it should continue to deliver results across the quarters ahead,” GlobalData managing director Neil Saunders wrote in a research note.
Even cautious shoppers are buying more than just food and household necessities, though. “We also saw improving trends across our discretionary categories,” Cornell pointed out. “We see a consumer that is still willing and able to spend,” Gomez added. “Yes, they’re still being choiceful. Yes, they’re budget conscious. And yes, they’re hunting for deals and everyday value. But they’re also willing to shop when they find that right combination of fashion and newness at the right price.”
Target has long lagged behind Walmart in groceries, where Walmart attracts some of its most loyal customers with its low-priced products that require no coupon-clipping or waiting for weekly sales. “We think we’re still in the early days of building out our food business,” Cornell acknowledged. But “we feel really good about the way the consumers reacted to the price investments we’ve made,” he added, noting that shoppers have already made more than a billion trips to Target so far this year, a 20% increase from the same time during pre-pandemic 2019.
As inflation has taken its toll, shoppers have been searching for relief. And now, at least two major retailers have found that bucking the recent trend, by lowering prices, can really pay off.
Image source: Target
