DISCUSSION
What price will Target and other retailers pay for their holiday sales promotions?
Written by George Anderson
Photo: Target
Target’s same-store sales have been trending in the wrong direction.
The retailer, which posted a 2.7 percent third quarter gain in its comps, saw its store traffic increase 1.4 percent on top of a gain of nearly 13 percent in 2021. Target’s average ticket also improved 1.3 percent.
Comps broken out month by month show a 2.8 percent gain in August, followed by a four percent increase in September. October proved challenging, with same-store sales declining 0.9 percent. This occurred despite the Target Deal Days promotion run between October 6 and 8.
Target CFO Michael Fiddelke, speaking yesterday on the company’s earnings call, called it “notable” that there was a “dramatic change in the pace” of the chain’s sales in October.
“The month began with an initial round of holiday promotions from Target and some of our competitors. And in that week, we saw a high single-digit increase in comp sales compared with last year,” he said. “For the remainder of the month, we saw a low single-digit decline in comp sales over those last three weeks. Nearly all of the slowdown was driven by our discretionary categories, apparel, home and hardlines as our guests became increasingly cautious in their spending in those categories at both Target and throughout the industry more broadly.”
Mr. Fiddelke said that Target has begun November with sales “trends consistent” with what the retailer saw at the end of October.
Target reported a 24.7 percent gross margin during the third quarter, an improvement of over three points from the second quarter, but “far short” of its goal. Mr. Fiddelke put most of the blame on consumers waiting for sales deals before they make a purchase. The retailer saw this trend intensify in the back half of October.
“While we anticipated a highly promotional environment this fall, given the excess inventory we've been seeing across retail, this enhanced focus on promotions reflects an increasing level of stress on consumers, as they navigate through multiple headwinds, including persistent inflation and rapidly rising interest rates,” he said.
A second factor cutting into Target’s profits is shrinkage. The retailer said that it has seen its gross margin reduced by $400 million to date due to “inventory shortage” and expects that number to grow to more than $600 million by the end of its fiscal year.