For the already discount-addicted retail industry, the price still doesn’t seem right.
A large portion of the retail sector is facing renewed pressure on pricing as the key driver to get shoppers to buy. Target became the latest to buckle under this new strain, conceding that it will compete aggressively on price amid disappointing results.
Target’s shares slumped on Tuesday after the company reported downbeat fourth-quarter same-store sales and profit and gave disappointing full-year forecast. That was a sobering change for Target: Its comparable sales, after having outperformed those of Walmart for the most part since 2010, fell for third straight quarter, lagging gains at both Walmart and the sector average, according to Retail Metrics data.
Target CEO Brian Cornell blamed its results on the impact of “rapidly-changing consumer behavior,” which sent its comparable online sales up 34% while physical-store sales declined. The bifurcation of online vs store sales was also evident at other retailers from Macy’s to JC Penney. Cornell also repeated another issue echoed by many of his retail counterparts: consumers are spending more on experiences and things that make them feel they are buying “into a greater purpose.”
“Our industry is in the midst of seismic shift,” Cornell said at the company’s annual investor and analyst meeting. “There’s a profound shift in the consumer mindset. The shift in channel preference is real and only gaining momentum. We’ve not seen this number of distressed retailers in the sector since 2009.”
In a poignant slide presentation during the presentation, Cornell showed store closings or liquidations by retailers from American Apparel and The Limited to Macy’s and Sears. In another slide, there were the highlights of outperforming retailers from Costco to T.J. Maxx parent TJX, the winning camp he promised to put Target in.
To do that, he said Target will aggressively compete on price, remodel 600 stores the next few years and open its smaller-format Target stores in cities and college campuses and roll out more products only available at its stores, such as its new Cat & Jack line of kids’ clothing. He also vowed to revamp the company’s supply chain to cut costs and increase speed.
While those strategies sound sensible, Target, like many retailers, still has a tall order ahead. Lowering prices on consumer goods and grocery to attract more mid-week fill-in shoppers still leaves it competing with Amazon on the online front and and Walmart, Kroger and others on the physical store side. Walmart, for its part, also has vowed to “invest in price” and has purchased Jet.com among moves to help it vie against Amazon at the sacrifice of its own gross margin.