While Target grapples with frugal consumers, Walmart thrives on its groceries

A day after Target leaders said the Minneapolis retailer would take a cautious business approach as it faces a less compulsive consumer, Wal-Mart raised its forecast for the year Thursday after reporting higher sales than financial experts had expected.

The key to Walmart’s confidence even as other retailers like Target are reporting a slowdown: groceries.

said Lisa Amlany, retail expert and founder of Retail Strategy Group.

On Thursday, Walmart reported that its U.S. comparable sales — or sales from stores open for the past year — were up 7.4% in February, March and April compared to the same time a year ago. Its global revenue of $152.3 billion exceeded Wall Street’s expectations. After a positive first quarter, company leaders expected its net sales to rise about 3.5% this fiscal year, a more optimistic forecast than the 2.5% to 3% they expected at the start of the year.

In contrast, Target Corp. took a more conservative approach as it saw sales begin to deteriorate later in the first quarter. Target’s sales were flat quarter-over-year from a year ago, something that hasn’t happened in six years for the retailer, primarily because of lower digital sales. However, its total revenue of $25.3 billion for the past quarter was in line with expectations, and its adjusted earnings per share came in at $2.05, better than analyst estimates of $1.76.

Target Leaders, however, projected that Q2 comparable sales would see a low single-digit decline, and full-year sales would decline or possibly post a low single-digit increase.

The big difference between Walmart’s and Target’s similar sales performance and its various ensuing events in the remainder of the year is the number of consumers who turned to Walmart for groceries as they tried to save money while shopping for essentials.

Wal-Mart reported that over the past quarter, its U.S. stores gained market share in grocery products, including for higher-income households.

Amlani said Walmart’s sheer grocery selection — which has continued to expand — and Walmart’s large number of retail stores put it on a different scale in grocery that Target can’t compete with based on sheer volume alone.

“There was a stigma attached to shopping at Walmart… across [consumer-packaged goods] And even clothes. “But” now more than I’ve ever seen it, I think there’s more acceptance of shopping around for the best price. “

That’s not to say Target hasn’t worked on growing its food offering and acquiring grocery customers. Good & Gather, introduced by Target in 2019, has grown to be Target’s largest owned brand, bringing in more than $3 billion in sales last year. More than half of Good & Gather’s products sell for less than $5.

“When I got to Target less than nine years ago, our food and beverage category was underperforming and losing market share,” Target CEO Brian Cornell said on a call Wednesday with analysts. “But rather than walk away from that part of our business, we decided to build on it.”

Target and Walmart both saw more growth in essentials while customers were more reluctant to buy discretionary products like general merchandise and apparel. Those classes have lagged behind since the end of the pandemic.

The softness of discretionary items is an issue for both companies, as these products offer better profit margins than grocery stores.

Target relies more on discretionary products, Amlani said, but in many ways, Target has also mastered the art of helping customers find deals with its own brands.

Target’s proprietary brand strategy is something Walmart and other retailers haven’t been able to match, Amlani said, and gives the Minneapolis retailer an edge in other categories like baby and kids’ apparel, seasonal goods and home decor.

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