Target’s new favorite buzzword is ‘value’

A customer shops the holiday section at a Target store in Clifton, N.J.

Adam Jeffery | CNBC

Target‘s goal this holiday season: Be more like Walmart.

The retailer’s leaders said customers will see thousands of gift ideas under $25, store displays that highlight affordability and low-priced Thanksgiving ingredients.

But the discounter will do it with a Target twist.

The company will try to stand out with its exclusive brands and fresh items, such as a new line of jewelry from Kendra Scott, Chief Growth Officer Christina Hennington said on an earnings call Wednesday.

“If there’s one thing that we’ve seen is in an environment where people are making choices and they might have constraints with their budget, the motivation to buy is really ‘Is this going to add value to my life? Is this something intriguing and feels relevant or fashion forward or is really for me?'” Hennington said.

Target is trying to play into customers’ hunger for deals, which it stressed to investors on the call. The company’s executive team used the word “value” 17 times. They used the words “affordable,” “affordability” or “affordably” seven times.

Target has struggled to improve sales as shoppers focus more on essentials while being choosier when buying clothing, electronics and more. The Minneapolis-based retailer posted a strong earnings beat on Wednesday, but its sales declined year over year and it said it expects that to continue in the holiday quarter.

At stores, Target has increased the number of displays at the end of aisles that focus on just a couple of price points, Chief Operating Officer John Mulligan said on the call. Going into the holiday season, nearly two-thirds of those displays meet that standard. They send an “easy to understand value message,” he said.

And more than a week before Thanksgiving, online shoppers have already been hit with a wall of Black Friday discounts on the company’s website, such as 50% off artificial Christmas trees.

Rivalry with Walmart

Target’s performance has sharply diverged from Walmart, which draws more than half of its annual revenue from groceries and is known for its low prices.

Walmart, already the biggest retailer, has also become more of a competitive threat for Target and other rivals, especially during an inflationary period. Walmart has used its grocery department to attract a growing number of higher-income shoppers. It has debuted a sleeker store design, which it’s rolling out to more locations. And it is adding popular and upscale brands through its third-party marketplace.

Walmart will report its fiscal third-quarter earnings before the bell Thursday. Investors expect the company to post higher earnings and revenue than a year ago.

The stock performance of the two big-box retailers has looked very different, too. As of midday Wednesday, Target’s shares were down about 13% so far this year. Before it reported fiscal third-quarter earnings, they were down nearly 26%.

Shares of Walmart, on the other hand, have shot up 19% so far this year. That’s ahead of the approximately 17% year-to-date gains of the S&P 500. Its shares hit an all-time high on Wednesday.

It’s not just Walmart. Other retailers with a value reputation have seen stronger sales, too. On Wednesday, TJX Companies, the parent company of T.J. Maxx and Marshalls, beat Wall Street’s expectations for sales and earnings.

On an earnings call, TJX CEO Ernie Herrman said the off-price retailer is “set up extremely well” for the holidays, especially as it competes in “an environment where consumers wallets are stretched.”

Target shares jump after retailer posts a big earnings beat, even as sales fall again

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