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Will Target Eventually Be Fully Superseded by Walmart and Amazon?
You’ve heard it before: “A jack of all trades is a master of none.” This can be positive or negative, depending on the case, and it seems like Target is stuck right in the middle.
The retailer has always been in an odd position because Walmart’s brick-and-mortar footprint is much bigger, with 4,623 Walmart locations in the U.S. compared to 1,956 Target stores, and Amazon is clearly a more prominent online player. Plus, both companies “generate far more revenue,” according to Inc. But Target constantly remains in business thanks to “a loyal following that any company would envy. That’s largely the result of the way the company has [built] a brand as a place people like to shop.”
The Street expressed how “Target has managed to be a discount retailer that’s also cool. The chain has a better reputation than similar retailers like Walmart and Kohl’s.”
Since its inception, Target has evolved into a destination that blurs the line between a traditional department store and an upscale discount store. This makes Target a place that’s both convenient and trendy for shoppers. Through strategic and curated partnerships with big-name companies, celebrities, and designers, like Kendra Scott, Target has even earned the nickname “Tar-jay,” further adding to its charm and upscale feel.
Additionally, the store-within-a-store concepts found in Target, encompassing brands like Walt Disney, Apple, and Ulta Beauty, serve as substantial customer magnets. Starbucks and Ulta play a particularly significant role in this pattern — patrons may initially step in for a coffee or to pick up some cosmetics and often end up with a cart full of other merchandise.
However, Walmart currently reigns supreme by offering the lowest prices (with some price matching) and expanding its online marketplace to rival that of Amazon. Target is willing to price match most competitors, but it can’t match Walmart’s cheaper generic brands.
What sets Target apart from its competitors are its “wider aisles, less crowded shelves, department store-like merchandising and trendy design touches,” as described by Reader’s Digest. “Target also has several brands it carries exclusively or owns altogether under the company’s umbrella,” in addition to its growing portfolio of private labels.
The biggest contributing factor to Walmart’s dominance is its inclusion of groceries. Even though most Target locations now offer food, CNBC noted last year that “groceries account for 56% of Walmart’s annual revenue, compared with just about 20% at Target, according to company filings. Walmart is the country’s largest grocer by revenue.”
In its recent Q3 earnings report, Walmart announced a 5.2% increase in revenue and stated that e-commerce was up 24% in the U.S. The retailer also reported “strong share gains in grocery.” Following these results, Walmart has slightly elevated its full-year forecast.
In comparison, Target’s third-quarter earnings report showed a 4.2% decline in revenue year over year, though its operating income was 28.9% higher than last year, “driven by a higher gross margin rate.” Additionally, according to Reuters, Target’s forecast for holiday-quarter profit is “largely above analyst expectations as supply chain costs finally eased and its efforts to control inventory started to pay off, sending shares up 17%.”
Meanwhile, in late September, Target announced the closure of nine stores due to theft, but some experts are saying that crime might not be the true cause.
Even with its own grocery offerings and trendy appeal, Target has not been able to consistently grow like Walmart or rule online like Amazon, leading many to wonder if it has missed the mark somewhere.
Discussion Questions
What do you think the future holds for Target as Walmart and Amazon continue to grow? Is there anything Target can do to compete with these retailers more effectively?
Poll
Loading …BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Jeff Sward
Founding Partner, Merchandising Metrics
Target is one of the most successful retailers in modern times. And while it’s true that Walmart is bigger and Amazon sells more, there is plenty of room in the retail landscape for Target – and countless other retailers for that matter – to grow and flourish. Target is already doing many things right, from their expanding array of private brands to their successful store-in-store presentations, and they have room to grow in these areas. However, one area that Target might consider focusing on is their grocery offering. Grocery is the ultimate traffic driver and recurring revenue stream, and an expanded grocery offering would help drive sales in discretionary categories.
I agree that Target still has plenty to offer the mid- and upscale consumer. It’s created its own niche where style is not sacrificed for price, but price remains reasonable. Perhaps I’m biased; as a former Target.com employee, I believe the brand can continue to evolve and reinvent itself successfully for many years yet.
Target shoppers are loyal to the brand and continue to stay that way—they are not shopping just on price. The Target shopper is wedded to the brand, and that bond is secure. Yes, Target clearly has an opportunity to grow their grocery business, but there is a lot of national, regional, and local competition for that piece of the retail pie, too.
Until the Walmart and Target customers are indistinguishable from one another, Target is a strong and viable player. There’s a reason that there’s a fake French pronunciation of Targét. It is a bit more upscale than Walmart and probably always will be. And that’s despite the trend to go downstream for discounts these days. Unless Amazon decides to make a huge play with large-format stores, they’re “only” beating Target online. Yes, Walmart and Amazon are killing businesses everywhere, but I don’t see Target as anywhere near throwing in their red towel.
Target is not stuck in the middle. It IS the new middle. The ever shrinking comps and footprint of the mall anchors tell a pretty vivid story of the fate of the former middle. Target + Walmart + Amazon will certainly supersede a whole bunch of other retailers, but Target will certainly not be one of the retailers to go away. And the article does an excellent job of explaining why. Which makes the premise of the headline odd indeed.
This is not a case of either/or. There is room for many competitors to share the same arena, and consumers are all the better for it. The key is for each retailer to focus on their own best selves rather than try to become something they are not. Where we see most retailers fail is when they try to become too much like their competitors in an effort to take their customers. Amazon’s efforts to take on brick and mortar have not gone well because that’s not how they best serve their customers. Walmart’s past efforts to look more like Target didn’t work well either as they alienated their customer base. JC Penney’s efforts to become more like Sears failed miserably, and SteinMart failed to pull in TJX shoppers. What consumers really want is a range of options to serve different needs, and to be able to count on those retailers to be consistent, reliable and satisfying in serving those needs. Target will be fine if they just stick to their higher quality middle and continue to offer clean stores, interesting products and great brand and retail partnerships.
Target has, wisely, created a much different persona than either of its rivals. Its “almost chic at a great price point” identity eliminates much of a direct comparison to its rivals. Mr. Cornell understands this and Target has a bright future.
Well said, Cathy! Among its competitors, Target is a standout.
There is too much gloom about Target in this article. And the idea it will be superseded by Amazon and Walmart, as the headline postulates, is nonsense.
The reason Target is finding the going a little tougher right now is because it is more exposed to discretionary products than Walmart; and that’s where consumers have been pulling back. Even Walmart has seen an erosion in sales across its general merchandise assortment – most of its growth has come from grocery. Eventually, both chains will bounce back once the economy and consumer finances strengthen.
On top of this, Target is lapping a period of exceptional growth, so there is a degree of normalization. Even so, compared to to pre-pandemic 2019, third quarter sales remain up 35.8% or $6.6 billion in monetary terms.
For the longest time Target was THE store. Walmart outpaced them. Competition is good. Now you throw in the online side of the business and you have an even bigger competitive playing field. And it won’t get smaller. There are other players coming into the marketplace. Will they be as big as Target or Walmart? Maybe one day. I predict Target will do well. They will do whatever reinventions or enhancements are necessary to continue to make their loyal customers happy – and attract new ones.
Every time I walk into Target I end up buying more than I intended. The same doesn’t hold true for Walmart. For me their in-store range and merchandising are far more appealing. So while they may not have Walmart’s prices or reach they serve a particular demographic very well. No they’re not Amazon, but sometimes you just need it now, or you just want an in-store experience. Target is convenient and provides a feel good experience. They should keep innovating with store layouts, store within a store, and other brand partnerships like they have.
The biggest growth area for them is definitely grocery. There are times when I wish they had a few more options. Sometimes I don’t go to target because the few grocery needs I want fall outside their wheelhouse. This would be a great place to expand and make themselves even more convenient.
This is a joke, right? Target does a great job and 2 not-perfect quarters do not mean the company is on the way out. People who will not shop at Walmart will shop at Target.
I think the emphasis on grocery wasn’t the smartest move, but I thought they were moving away from it. Rather than expand the offering, I think they should shrink it. It’s a pure commodity, and that’s what gets Target “stuck in the middle.” Much easier to excel at unique offerings for home and body (clothes) that to differentiate with groceries. Grocery drives traffic, but it’s not profitable traffic. The margins are awful, as we know and Target has better things to do that try to tweak the turn of milk.
Target has a great future ahead of it, if it stays true to what its brand is. It was always differentiated. It should remain so.
To borrow from a love song in The West Side Story; “There’s a Place for Us.” We have a huge population. We have many financial strata. We cover large climate sections of the country. Target’s management only has to identify voids in the market, its strengths, and determine to whom it wants to market. Everyone can’t be number one and everyone doesn’t have to be number one. There’s a place for Target.
I’m sure my fellow Target alums read this and thought, “This again?” Target’s demise, especially vs Walmart, has been prophesized for decades. Folks, one company’s massive growth does not portend everyone else’s demise. Target has a strong niche in the market, last I checked, a niche worth about $107 billion in sales.
Target’s success is driven by their crystal clear vision of who their customers are, and what they want. Combine this with the ability to execute change at a speed almost unequaled in the market. That’s a huge competitive advantage. If you look at market share between Walmart and Target by income strata, you’ll see a very clear inflection point where brand loyalty shifts dramatically from Walmart to Target as you go up the ladder. Over the years, that resting point shifts a bit, up and down, but really, not by very much. The things that Target does especially well are in-store experience for their guests, setting the bar for private label execution at mass, and consistently bringing in new partners, new products, and new ideas that their stores fresh and their guests engaged has been a proven strategy. Are the hiccups? Occasionally. Their execution of Omnichannel was slow to come up to speed. They’ve made mistakes in the supply chain that have resulted in missed sales. But, like every great company out there, they learn, adapt, and move on.
This strategy has worked for Target for 60 years and continues to be successful. Any talk about “is this the end?” is really shortsighted. They beat Walmart where they need too, and they beat Amazon where they need to. They have a great brand, they have fiercely loyal customers (So fierce many won’t step into the competition), and they continue to grow. And yet, these stories hit the news again and again.
Interesting trivia. 1962 was a banner year in Retail. In Rogers, AK, Sam Walton opened the first Walmart. In Roseville, Minnesota, the Dayton Brothers, department store moguls, opened their first discount store, Target. In Garden City, Michigan, SS Kresge opened the first Kmart. Sixty-one years later, three very different stories and three very different lessons for retailers. The bottom line is that focusing on your customer is the first step to success. Take your eye off the ball and stop investing in stores and people…Ironically, this week, the City of Minneapolis tore down the former K-Mart flagship store at Lake and Nicollet.
Amazon offers e-commerce leadership. Walmart offers low-cost leadership. Target will continue to own people-first leadership.
Target can deepen its emotional connection with shoppers by offering the best store experience. More strategic partnerships with category leaders will give Target’s shop-in-shop concept appeal its rivals can’t imitate. Adding in-store retail media opportunities will drive revenue.
Investing in more grocery private labels would encourage shoppers to visit more often, especially if Target adds more value with loyalty rewards for members.
Target loves its people. It will continue to leverage culture and the employee experience to support service excellence as a differentiator
I believe that Target will be just fine in the long term, but its underperformance in food is likely part of what has brought about its current challenges. Grocery is a traffic driver, a sales driver, and a necessity during challenging economic times. Target’s strength has been in home furnishings, general merchandise, and apparel… discretionary purchases rather than necessities. They remain a strong player, but they are not built for the current environment. As inflation wanes, their performance should improve.
I do believe they need to lean into omnichannel a little more aggressively. Voices in the supplier community indicate that they are not as focused on their online business as Walmart, and the results show it. Typically the most valuable customers to a modern retailer are those that engage across channels. Winning online = winning in-store now, and well into the future.
Costco. Dollar General. Five Below. Lots of different ways to play and win. The full Target parking lot and strong margin number tells me they are indeed doing just fine in the current environment.
Target is a blend of retailing. This allows it to attract loyal customers, compete in the same space as Walmart and Amazon and many other retailers, without necessarily being the lowest price leader. This has worked for Target for years, and there is no reason why it should stop, since it attracts its own loyal customer.
Target’s sales have hit a bump in the road (not for the first or last time) but its success over 60+ years comes from its consistent brand positioning and execution. The management of Target — whom we were all praising to the skies just a year or so ago — did not turn into idiots overnight, and I’m confident they will get back on track.
As far as competing for market share with Walmart and Amazon, there is a big landscape of other retailers out there that can provide opportunities to Target. (Not just defunct specialists like Bed Bath & Beyond, but also general merchants like Kohl’s and Penney with issues of their own.) As the effects of inflation subside, and shoppers return to more discretionary goods, I expect Target’s sales trend to rebound.
Target’s future may involve continued challenges in competing with Walmart’s dominance in groceries and Amazon’s online presence. While Target’s trendy appeal and strategic partnerships are strengths, it may need to innovate further to navigate the evolving retail landscape and sustain growth.
Target’s partnerships with major brands like Starbucks and Ulta Beauty, create store-within-a-store concepts that attract customers. Additionally, collaborations with unexpected names, like Chip and Joanna Gaines and Vineyard Vines, add an element of surprise, setting Target apart from competitors.
Target can increase competitiveness by optimizing its online platform, expanding exclusive partnerships, and innovating in-store experiences. Prioritizing affordability, sustainability, and unique merchandise offerings can attract and retain a diverse customer base.
Doesn’t every retailer compete against WalMart and Amazon (perhaps not literally every one, but many, many) ?? While it’s always useful to remember that WM dwarfs Target – too many pople act like they’re equals – they don’t exactly go head-to-head: each has a niche, and I don’t see that changing.
Target’s “cheap chique” image continues to be a unique positioning vis a vis the noted larger competitors. The company’s Achilles heal continues to be grocery. Grocery drives store traffic into Target’s profitable sections of the store. Target leadership is aware of this issue & realizes this needs to be a continuing focus. I wouldn’t best against them.
In my opinion, Target’s future will depend on leveraging its unique strengths. While it may not outpace Walmart in groceries or match Amazon’s online dominance, Target’s charm lies in its trendy and convenient shopping experience. To compete effectively, Target should continue enhancing its exclusive partnerships, maintaining a cool brand image, and focusing on in-store innovations. Strengthening its online presence and optimizing the supply chain will be crucial. By staying true to its identity as a stylish and accessible retailer, Target can cultivate its loyal customer base and navigate the competitive landscape posed by Walmart and Amazon.
Target is too large to talk about the decade long doom-and-gloom analysis of Walmart killing it. That said, despite the many pro-Target comments here, concerns are warranted. Target’s lack of grocery penetration is a real worry as it is a frequent traffic driver that Walmart has remarkably capitalized on over the last decade. Scale matters, especially with the rise of retail media networks, a margin driver that has delivered solid cash flows. But Target’s rise in margin is impressive. They have the best private label portfolio in Big Box, and it continues to drive real loyalty. I’d love to see Target acquire Trader Joe’s, which is it’s own private label powerhouse of loyal shoppers in grocery, that could supercharge it’s grocery position and change the way they think of grocery in big box. The challenge would be store layout and checkout, but otherwise it’s a match made in heaven.
This website has always been like the Target fan club. Various posters seem to have these peculiar picture perfect Target Stores they frequent that offer a Disney like experience. I have no clue where these stores are.
On the ground today my current view of Target is negative. The stores in my area are poorly stocked, poorly staffed, with rude lazy standing around employees, and have a nasty string of negative reviews on Google and Yelp for the past year ish. They’ve driven off a lot of Drive Up business due to lack of ability to fulfill orders and slow service.
It isn’t unusual to see them be self checkout only. I complained about that and the solution is closing self checkout and having 1 checkstand open with 8 customers in line.
The Target clothing areas are so messy with so much clothing on the floor that I’ve never seen anything quite like it. Nobody cares. But shoppers are absolutely turned off.
The thing is customers expect better of Target. Why drive past 3 Wal Marts to get to Target if the experience is going to be poor and worse they won’t even have what you want due to understocked shelves?
Customer expectations of Wal Mart are low and they have a price plus assortment strength so great that many customers are very forgiving of their various operational issues.
Target’s stores (at least the ones in my area) are consistently cleaner with lower wait times at check out. That alone will keep shoppers coming back. For cost conscious shoppers where price is the only differentiator, okay, maybe you lose some business there, but I like where they are positioned brand wise versus both WM and Amazon.
Target’s distinct advantage is its fashionable and user-friendly shopping experience, even though it may not eclipse Walmart in groceries or Amazon in e-commerce. For Target to stay competitive, focusing on in-store innovations, nurturing interesting collaborations, and preserving its unique image is key. By steadfastly adhering to its identity as a chic and accessible retailer, Target is well-positioned to grow its loyal customer base and effectively navigate the competitive terrain dominated by giants like Walmart and Amazon.
Target has built a niche within the world of discount retail, and its loyal customer base signals that the retailer isn’t going anywhere. Target appeals to its customers by offering an experience. To date, they have done a nice job with investing in technology and store modifications to manage e-commerce for customer pick-up, for example. This experience can be further enhanced if the retailer leverages AI effectively. Target’s advantages include having a strong brick-and-mortar presence that allows the retailer to customize listings and store programs based on geography, including its partner affiliations and relationships with private-label brands. In order to take full advantage of these affiliations, Target could leverage its loyalty program for more customized and personalized offers that align with its specific inventory, relationships and geography. Another idea is to expand partnerships with “store within a store” merchants, creating a network where loyalty members can use their perks interchangeably at any affiliate location, like Starbucks, Apple and Ulta Beauty, for example.