Walmart maintains lead as it battles Target for Americans’ wallets (video)

In the battle for America’s shoppers, Walmart (WMT) still dominates the target (TGT).

The world’s largest retailer continues to win over high-income shoppers in the face of persistent inflation as it expands its advertising and membership revenues. It has maintained its value advantage by offering food prices that are about 10 percent to 12 percent cheaper for an average grocery cart, according to Goldman Sachs analyst Kate McShane.

“Walmart’s thesis is that they’re really among the biggest and best retailers out there,” Telsey Advisory Group’s Joe Feldman told Yahoo Finance by phone. The company is “well-positioned when times are tough, well-positioned when things get better.”

Walmart has done “a very good job of going after a more affluent consumer and still keeping the core customer” of low- and middle-income consumers, Feldman added.

Grocery accounts for 60 percent of Walmart’s U.S. sales, but only 20 percent to 25 percent of Target’s, according to Morningstar analyst Noah Rohr.

Target tried to turn the tide by announcing a plan in May to cut prices on 5,000 items, which Bank of America analyst Robert Ohmes said “brought a positive boost to foot traffic for Target.”

This week, Announced target another price cut on 2,000 items before the holidays.

“We believe further price reductions could drive additional traffic as we enter the crucial holiday shopping season. Overall, we view this announcement as positive for Target’s top-line and comparable sales going forward,” Jefferies analyst Corey Tarlowe wrote in a note to clients.

Walmart competes not only with Target, but also with supermarket chains, drugstores and discount stores. In the last quarter, the US same store sales rose 4.3%, while those at Target fell 2.0%.

Investors appreciated the results. Walmart shares are up 52% ​​in 2024, compared with Target’s 5% gain and the S&P 500’s 23% gain.

Walmart’s advantage in the grocery aisles continues to help offset weak sales in categories such as toys, apparel and electronics. “Discretionary has been down for the last 10 quarters,” McShane said, with some signs of recovery at both retailers. In 2025, discretionary spending on goods is expected to increase, which could be a boost for Target, McShane said.

When it comes to branching out into other high-margin businesses like subscription, e-commerce and retail advertising, Walmart has also taken a lead.

The company launch its Amazon Prime competitor, Walmart+, in 2020 for $98 per year. Target started its Target Circle 360 ​​program just in March for $99 a year. Both include same-day shipping, though Target has a $35 minimum.

Walmart+ offers additional perks like savings on Paramount+ memberships, 25% off Burger King digital orders, $0.10 off a gallon of gas at over 13,000 stations, pickup for returns at customers’ homes, and even repair free tires.

“What really happened with Target Circle is they didn’t do much with Target Circle during the COVID years, where they outperformed everybody,” Ohmes said. “They really had to move beyond the COVID … beyond the inventory issues that they had in 2022, and that led to the liquidation issues that they had in 2023.”

Now, Target is looking to invest more aggressively in its loyalty rewards and paid subscriptions. Gives Circle members an extra 30 days for returns, plus same-day ordering from dozens of retailers through the Shipt Marketplace.

Last quarter, Walmart US saw its e-commerce sales grow 3%, driven by in-store pickup and delivery.

“Pick-up is growing faster than our store or club sales, and delivery is growing even faster than pickup. The accuracy and speed of delivery continues to improve,” CEO Doug McMillon said on the earnings call.

Target saw its digital sales grow 8.7% year-over-year. CEO Brian Cornell said the Drive Up and Target Circle 360 ​​programs have increased sales in teens. He added that same-day services now account for two-thirds of digital sales, with most customers opting for Drive Up, which brought in $2 billion in sales in Q2.

Walmart Connect, the company’s advertising business, also flourished. Its US revenue grew 30% year-over-year, with online marketplace seller advertising sales up nearly 50%.

Target is trying to develop its own offering, the Target Roundel. Cornell said it “continues to experience rapid growth based on the shared value it creates for both our guests and our suppliers,” with double-digit revenue growth. It is expected to grow in the “high teens” for the full fiscal year, after “a growth of more than 20% in 2023.”

Neither retailer shared exact revenue figures for its ad business. For reference, Amazon’s ad unit boasted a 20% year-over-year revenue increase, bringing in $12.77 billion in Q2.

Walmart’s e-commerce market is “coming very close to being profitable” at Walmart, McShane said.

“There is more acceptance from the investor base (in) the alternative revenue streams that Walmart is pursuing … that these are faster-growing, higher-margin businesses that should lead to better profitability for the company in the long term,” McShane said. .

“Walmart had a great year and they outperformed … Fundamentally, everything is going so well for them from an inventory perspective. Plus, it doesn’t look like we’re done… With the setup for this holiday season, everyone is looking for value. What better retail provides value than Walmart?” Feldman said.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email them at [email protected].

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