Of all the biggest retailers in America, Target is the one reporting the worst performance right now, fresh data shows. Even its top executives admit that the chain has alarming problems, and those are having a disastrous impact on the retailer’s bottom line.
Target has dealt with an unprecedented 90% drop in profits in the past year, but its strategy to raise prices in 2023 to offset these losses is hurting the retail giant way more than helping. Consumers are not interested in buying 60% of the company’s inventory, and the remaining 40% is significantly more expensive this year, leading people to choose other retail shops for their everyday purchases. Target sales continue to disappoint, and investors and major financial institutions do not believe things will improve for the chain anytime soon.
The ugly truth no one seems to have the guts to say is that Target is rapidly deteriorating all around us, and its downfall may happen sooner than anyone anticipated.
This year, conditions have become even tougher as customers cut back on discretionary spending amid a weakening broader economy. The problem is that general merchandise in categories like apparel, accessories, and home goods is the retailer’s core strength, and it accounts for more than 60% of Target’s inventory. In other words, on top of everything else, the company has lost 60% of its sales potential.
Even though the remaining share of its product offering, or about 39%, is in the grocery category, the company didn’t see any significant increase in grocery sales in 2023. In fact, after rising by a mere 1.7% and 0.8% in January and February respectively, grocery sales declined by 0.7% in March, and 0.9% in April, generating a dismal 0.9% uptick in food sales for the entire quarter.
That’s because the retail giant may have made a terrible mistake in its pricing strategy. Given that its discretionary items are now selling at discounted prices due to an oversupply of goods, the company decided to introduce new price increases in the only category where it remained profitable. But customers did not take the price changes lightly.
In a year’s span, Target’s overall grocery prices rose by a staggering 21%, according to data provided by GOBanking Rates. The chain’s grocery prices are not as affordable as their competitors. Costco, Aldi, and Walmart can offer more value and better deals for their customers. Another problem often mentioned by Target shoppers is that there are always empty shelves in the grocery section, the quality of fruits and vegetables is questionable, and some products disappear and never come back to the stores.
To add assault to injury, this year, CEO Brian Cornell predicts Target’s total shrink was around $400 million in fiscal year 2021 and rose to $736 million in 2022. If the anticipated $500 million increase does materialize in 2023, that would bring the three-year total to a whopping $2.4 billion.
The company seems to be crumbling from within, and if it fails to address its problems with efficiency, it may break apart right before us just as many other retail giants did before they disappeared forever. That would be an unfortunate ending for such a popular retailer. But this industry is ruthless, and competitors are stepping up their game while Target continues to deteriorate all around us.
Article and video cross-posted from Epic Economist.
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