All those things considered, though, Target had a decent quarter. Comparable sales in the period ended April 29 were flat compared with a year earlier. Wall Street analysts were expecting a 0.1% decline. Notably, last quarter marked the 12th consecutive quarter of year-over-year growth in store traffic at Target—a feat that neither
Walmart
nor
Costco
achieved. Unsurprisingly, so-called frequency categories excelled: Comparable-store sales in beauty products grew roughly 15%, while food and beverage sales grew by a high single-digit percentage. Household essential sales also grew. But comparable-store sales declined in apparel, home and hard lines—categories that collectively have made up more than half of Target’s sales.

Despite weaker demand in discretionary categories, though, Target’s strategy still involves leaning into them. Chief Growth Officer

Christina Hennington
said on the investor call that the company is trying to be clear about its value messaging to consumers, calling it “affordable joy.” Swimwear, for example, starts at $12 and its own-brand children’s clothing Cat & Jack sells T-shirts for as little as $4.

That seems to be the least bad strategy for Target in this challenging environment. In a price-sensitive environment, it will be difficult for Target to win grocery market share from budget-friendly competitors such as Walmart, discount grocers such as Aldi, and Costco. Target held just a 3.1% market share in groceries in the first three months of 2023—unchanged from 2021 and 2022, according to data from Numerator. Price-sensitive consumers aren’t going to make it any easier for Target to gain share in that category today.

Moreover, Bed Bath & Beyond’s demise could give Target an opening in other categories. While Target’s executives didn’t mention the bankrupt chain by name, Ms. Hennington hinted at it, referring to a “market disruption” that should help the company gain market share in home goods during the back-to-school and back-to-college season. It helps that Target has worked through most of its excess inventory, which declined 16% compared with a year earlier. That gives the retailer a blank slate from which it can order new, value-oriented apparel and home goods.

Nevertheless, it won’t be easy. Value-oriented discretionary sales are still dominated by off-price retailers such as T.J. Maxx and HomeGoods owner
TJX
Cos., which reported on Wednesday that the unit housing T.J. Maxx and Marshalls collectively grew U.S. comparable-store sales by 3%. Meanwhile, theft eroded Target’s gross margins by 1 percentage point last quarter compared with a year earlier. If it continues at the current rate, the hit to Target’s profitability could be half a billion dollars this fiscal year compared with a year earlier, the company said on the earnings call. 

Target’s vulnerability in a downturn is nothing new. Its stock underperformed both grocery-focused peers and TJX in the 2007-09 recession, losing 15% from the beginning of 2007 to the end of 2009, while Walmart, Costco and TJX all appreciated. A bit of merchandising magic and a better turn in the economy could change that fate, of course, but Target’s stock valuation of 0.66 times forward sales, slightly above that of Walmart, seems to be pricing much of that optimism in.

Write to Jinjoo Lee at [email protected]