Target Corp. (NYSE: TGT) management said it would cut prices across a “thousands” of items in a bid to take market share, most likely from Wal-Mart Stores Inc. (NYSE: WMT) and Costco. The cuts may hurt Target in two ways. They undermine margins but may not increase store traffic.
Target management announced:
If you love Target for incredible exclusive brands, super-chic collaborations and one-stop shopping for pretty much everything on your list, you’re going to really love this: We’ve lowered our prices on thousands of items, from cereal and paper towels to baby formula, razors, bath tissue and more.
Sure, there’s nothing like that victorious rush of nabbing a spectacular deal, but having to figure out what “As Advertised!” and “Temporary Price Cut” mean or waiting for just the right sale to roll around can be, well … super frustrating.
So, we’ve put our prices and promotions under the microscope. Our mission? To cut through the clutter and provide guests with great everyday value, while continuing to offer additional savings on the right products at the right times.
“Everyday value” is one of the oldest retail marketing tactics in the industry’s catalog of ways to increase foot traffic. It is used by companies as diverse as fast food and new cars.
Target still has to hope that lower prices will stimulate purchases at its stores. The plan is up against huge sales like Walmart’s “End of Summer Clearance” and special deals that members of Costco and Amazon Prime members get every day.
In the most recent quarter, Target’s revenue inched up a tiny 1.6% to $16.4 billion. Net earnings dropped 1.2% to $672 million. Target does not yet have the problems of other large retailers that are fighting plunging sales. However, Wall Street has sent Target a warning about the decisions by its executives to turn around performance. Target shares are off 20% this year to $57. Over the same period, Walmart’s shares are higher by 14% to $79.
Target’s management may have miscalculated the benefit of sharp cuts in product prices. It results for the current quarter will tell soon enough.