Target’s Prices Are Getting Cheaper and So Is Its Stock
The price wars among the biggest U.S. retailers are only getting more intense.
Target (TGT) said in a blog post on Friday it has “lowered our prices on thousands of items, from cereal and paper towels to baby formula, razors, bath tissue and more,” a move designed to counteract the pressure hitting it from Amazon.com’s (AMZN) aggressive prices and the billions of what Walmart (WMT) spends on what it calls “price investments,” also known as price cuts. Target’s moves include removing about two-thirds of its price and offer call-outs like “Bonus Offer” in stores.
The news sent Target’s shares tumbling 3% on renewed concerns about the discount chain’s profit margins. Earlier this year, Target frightened investors when it said it would spend $7 billion in the coming years on remodeling hundreds of stores, and improving its supply chain to better ride its e-commerce growth. That unnerved shareholders worried about Target’s profit forecasts.
Target has made outsized bets on what it calls its “signature categories” – product areas like children’s products and health and wellness items – that it wants to dominate and that get customers into stores. It has also been refreshing some store brands and creating new ones, such as its popular Cat & Jack line of clothes for kids. But at the same time, it has to remain price competitive since it is, after all, a discount retailer. The company has ramped up its low prices in its marketing and last quarter, comparable sales broke a streak of declines. At the same time, Walmart is also growing and has made clear it will fight hard on price.
In its blog, Target emphasized its lower prices as a new normal and said it is making it simpler to figure out deals. This approach to pricing is known as “everyday low pricing” and is the standard practice at Walmart and others. The idea is not to make customers confused by a special offer or cheated when they see a lower price later. A number of department stores, notorious for their markup then mark-down approach, have also been trying to simplify pricing to reduce customer frustration,
In its new pricing approach on many items, Target is looking to “cut through the clutter.” Chief Merchant Mark Tritton wrote in the blog that includes “removing the guesswork to ensure they feel confident they’re getting a great, low price every day” on every day items.