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Walmart and Target’s quarterly results lay bare the retailers’ stark differences
Source
American Shipper
Post Date
11/29/2022

KEY POINTS

• Groceries account for more than half of Walmart’s sales, and just 20% of Target’s.
• It’s one of the key differences that help explain the companies’ diverging outlooks.
• On Tuesday, Walmart raised its outlook for the year. A day later, Target slashed its fore for the key holiday quarter.

Walmart’s stock surged this week. Target’s shares plunged.

The rival big-box players are both known for selling an array of products including food, clothing, home goods and kitchen appliances. Both their CEOs — Walmart’s Doug McMillon and Target’s Brian Cornell — stepped into their roles in 2014.

But the retailers issued starkly divergent outlooks this week that underscored their differences, most notably in how much each relies on grocery sales.

On Tuesday, Walmart raised its financial outlook for the year after U.S. same-store sales in the third quarter rose 8.2% from a year ago when excluding fuel. A day later, Target slashed its fore for the holiday quarter after comparable sales rose just 2.7%, with utives noting weakening trs heading into the season.

Here’s a rundown of four key factors that help explain the split in the earnings results:

Grocery routine vs. Occasional stop

Walmart gets a far bigger share of its sales from groceries than Target, which is helping it draw shoppers looking to save money as inflation squeezes budgets.

Groceries account for 56% of Walmart’s annual revenue, compared with just about 20% at Target, according to company filings. Walmart is the country’s largest grocer by revenue.

Target also sells groceries, but it doesn’t have the same breadth of offerings. For example, stores sell eggs, milk, fruits and veges, but do not have full-service bakeries, meat and seafood counters or delis where shoppers can get freshly sliced turkey and cheese.

More customers turn to Walmart to fill out the bulk of their grocery lists, said Neil Saunders, managing director of retail advisory firm GlobalData.

By contrast, shoppers t to go to Target more for “top-up shopping” — grabbing a few food items when making a run for another reason, such as picking up diapers.

Even as shoppers decide not to buy a TV or a new outfit, they have had to keep replenishing the food in their fridges — a factor that is keeping Walmart’s sales steadier.

Low prices vs. Fun finds

Walmart is known for its mantra of “everyday low prices” and its focus on value has become synonymous with its name. Founder Sam Walton built the company on a no-frills approach aimed at making groceries and other products more affordable.

As Americans increasingly watch their budgets, the big-box retailer’s reputation as a discounter is giving it an edge. And the company has flexed its ability to use its size and scale to keep prices low.

Walmart’s McMillon speaks often about the company being a price leader — and more recently, an inflation fighter. For Thanksgiving, the company said it would hold down the price of foods like turkey and ready-to-heat macaroni and cheese to last year’s levels.

The low prices are attracting new customers, including more higher-income households.

For the past two quarters, the company said about 75% of its market share gains in groceries have come from households with an annual income of more than $100,000 a year.


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