Target’s price lowering strategy seems to be working
A string of efforts to provide more deals and discounts this year seem to be helping to turn around Target’s lackluster sales performance.
Early in the year, Target relaunched its everyday essentials brand Up&Up, which offers more than 2,000 items under $15, and reformulated 40% of the products in that line. In May, Target said it would drop the prices of 5,000 frequently purchased items like milk, bread and paper towels. The retailer also relaunched its Target Circle membership program with automatic deals and a paid membership for same-day delivery in April. The program offers automatic deals at checkout, an additional 5% for members with the renamed Target Circle Card credit card and more member-only deals during Target Circle Week, its July sale competing with Amazon’s Prime Day.
These moves came as consumer-facing companies across the board have been making price adjustments to woo back price-conscious customers, such as fast-food chains facing off with each other on meal deals.
“It’s really a bundle of all those things that we do each and every day to strengthen the relationship we have with the guests and provide them with the value they’re looking for in this economic environment,” Target CEO Brian Cornell told investors in a second-quarter earnings call Aug. 21.
Target’s strategy appeared to be reflected in its latest earnings report: the company saw its first comparable-sales increase in more than a year of 2%, while its transaction count grew 3%. Net earnings increased 42.7% year over year to $1.2 billion. Its discretionary sales — where consumers are being especially cautious — are improving, with apparel growing more than 3%.
“American families continue to deal with a lot these pressures that are clearly weighing on them, and they’re looking for a refuge from the everyday stress that they’re feeling,” Rick Gomez, Target’s chief commercial officer, said in the earnings call. “And yet, while the economic data remains mixed, we see a consumer that is still willing and able to spend. Yes, they’re still being choiceful; yes, they’re budget conscious; and yes, they’re hunting for deals and everyday value, but they’re also willing to shop when they find that right combination of fashion and newness at the right price.”
People are taking advantage of the Target Circle loyalty program: Target Circle 360 same-day delivery grew almost 14% and drive-up sales grew more than 14%. Target Circle Week brought 2 million new members to the 100 million-plus-member loyalty program.
Neil Saunders, managing director and retail analyst with GlobalData Retail, noted that Target’s investments on pricing and deals, as well as a push to keep prices low on back-to-school offerings and the bargains during its Amazon Prime Day competitor Circle Week, helped to drive sales activity. But he said there’s still work to do, including on its average transaction amount, which decreased about 1% year over year.
“Target still has some issues driving basket sizes as customers are cautious about discretionary purchases, it still needs to work more on tightening the in-store experience, and new life needs to be breathed into some of its private labels,” Saunders said. “However, now the business is on a steadier footing it can work on all these things.”
Expansion and growth of Target’s private labels in categories such as food, drink and essentials, will drive repeat purchases, said Jessica Ramirez, a senior research analyst for Jane Hali & Associates. “As you’re replenishing, there’s more of a reason to come into the store, so they’ve very strategically done that.”
In the earnings call, Gomez said the company has more than 150 new private-label brand products soon to hit stores, including products with fall flavors like pumpkin spice, apple and pecan pie.
Cornell said the company has taken a cautious approach over the last few quarters and is controlling what it can despite the headwinds.
“Throughout the company, we’re focused on retail fundamentals and strong execution; this includes our commitment to being in stock and reliable even as we maintain a prudent inventory position,” Cornell told investors. “It also includes our focus on delivering speed and convenience in every fulfillment channel while providing efficient and friendly service to our guests in every store every day.”