Rick Wilking/Reuters
- Target says its customers are now getting more choosy about purchases.
- It seems pandemic-era "revenge spending" may have run its course.
- Shoppers are still making impulsive purchases, but they're smaller and more last-minute.
Target's CEO said Wednesday that customers are continuing to make more tradeoffs in their family budgets and delay some spending.
"Overall, consumers are still spending, but pressures like higher interest rates, resumption of student loan repayments, increased credit card debt and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs in their family budgets," Target CEO Brian Cornell told investors on Wednesday during the company's third-quarter earnings call.
A slowdown in sales of big ticket items like furniture and electronics in recent quarters has posed a distinct challenge for the Bullseye brand. Just a couple years ago, Target could hardly keep pace with demand as consumers went on "revenge-spending" sprees after months of pandemic-related savings.
The company now heads into the holiday season with less of an emphasis on 4K TV's and air fryers, and more focus on offering thousands of items at $25 or less. The lower price-points are meant to inspire more of the unplanned purchases that make a Target run a Target run.
"If there's one thing that we've seen is in an environment where people are making choices and they might have constraints with their budget, the motivation to buy is really 'Is this going to add value to my life? Is this something intriguing and feels relevant or fashion forward or is really for me?'" Target Chief Growth Officer Christina Hennington said on the earnings call.
And while revenge spending is tapering off, the company is also seeing customers delay some purchases.
"This year, we've seen more and more consumers delaying their spending until the last moment," Cornell said. "Guests who previously bought sweatshirts or denim in August or September are deciding to wait until the weather turns cold before making a purchase."
"This is a clear indication of the pressures they're facing," he added, pointing to food prices remaining at a stubborn 25% above their 2020 levels. "It all puts pressure on discretionary spending."
Of course, US retail consumers continue to defy expectations and spend at a robust clip, but worrying developments such as missed payments on credit cards and auto loans suggest an imminent belt-tightening.
"Is this strength in consumption sustainable?" Bloomberg Economics chief US economist Anna Wong asked in September. "It is not."
Retailers face a tougher landscape this holiday season and going into 2024. Target said it has used the challenges of the past year to sharpen its focus on retail fundamentals.
Target's leaders said their strategy in this environment is to offer more of what people want to buy, at prices they can afford — especially in the discretionary categories that are the company's wheelhouse.