Mar 5, 2024 - Economy

Target takes on Amazon and Walmart with same-day delivery push

Target storefront with shoppers walking in front of store

Target reported its quarterly earnings on March 5. Photo: Shelby Knowles/Bloomberg via Getty Images

Leaner inventory at Target stores has meant fewer markdowns and should translate into stronger future profits, company officials said today.

Why it matters: The Minneapolis-based retailer said its comparable sales declined for the third quarter in a row but shared a plan to grow sales by relaunching its Target Circle loyalty program.

  • Target reported a 58% increase in fourth-quarter profits, beating Wall Street expectations and driving the stock up 12.1% Tuesday.

Between the lines: Comparable sales fell 4.4% in the fourth quarter, but that beat Bank of America's estimate of a 5% drop.

  • Target's revenue drop reflects a broader trend of Americans pulling back on non-essential spending, GlobalData managing director Neil Saunders said.
  • "Unlike Walmart, Target's grocery offer is not able to offset the weakness by pulling in more shoppers or providing a strong uplift to spending," Saunders wrote Tuesday. "This leaves Target very exposed to the vagaries of the wider economy."
  • The company attributed its better-than-expected performance to several factors, including "lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix."

What we're watching: The company is hoping the Target Circle upgrade lures in shoppers.

  • The plan rolls out April 7 and includes a new subscription feature — Target Circle 360 — that will help Target better compete with Walmart and Amazon and drive same-day delivery sales.
  • Target Circle 360 debuts with an introductory price of $49 a year for unlimited same-day deliveries for orders $35-plus "in as little as an hour," said Cara Sylvester, the company's chief guest experience officer.
  • It undercuts Amazon Prime ($139 per year) and Walmart+ ($98), but both those programs have perks ranging from streaming video to a gas discount.

What they're saying: "In our view, Target Circle loyalty program improvements (launching 4/7/24) are compelling and can add traffic, transactions and incremental engagement opportunities," TD Cowen analyst Oliver Chen said in a research note.

Yes, but: The price will be $49 for the first year through May 18 and then increases to $99.

  • Target Circle Card holders, previously RedCard holders, can sign up for $49 at any time, the retailer said.

Zoom in: The new Target Circle will still include a free loyalty program but instead of shoppers searching for discounts and selecting them, they will automatically apply, Sylvester said.

  • Target Circle members spent five times more than shoppers who aren't members and shopped five times more often, Sylvester said.
  • The free program has more than 100 million members.

What's next: Target plans to open more than 300 U.S. stores in the next decade and continue to remodel existing stores, CEO Brian Cornell said Tuesday.

  • Target also said it will continue to grow its store-owned brands, which generate $30 billion in sales annually.

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