For years, Target has leaned into its faux-French nickname “Tar-jay,” marketing itself as an elevated-yet-affordable retailer. But Target’s new “dealworthy” brand, which includes items from jumbo cotton balls to boxer briefs, could call that strategy into question.
The retailer introduced the budget-conscious brand on Thursday with nearly 400 products, mostly essentials and apparel, priced mostly under $10, which Target says is among the lowest shoppers will find in stores. Put off by rising costs due to inflation, customers have embraced store-brand “dupes” to save cash. Over half of shoppers surveyed by the Food Industry Association in October said they planned to buy private-label grocery brands, such as Target’s Good & Gather or Costco’s Kirkland Signature.
“We know that value is top of mind for consumers, and dealworthy, backed by our owned brand promise, will not only appeal to our current guests but position us to attract even more new shoppers to Target,” said Rick Gomez, Target’s executive vice president and chief food, essentials, and beauty officer, in a press release.
The pressure is on for Target to keep pace with other low-cost competitors. While Walmart has seen steady share price increases over the past five years, Target’s stock has ebbed and flowed.
Target relies heavily on its own-brand products, which have become increasingly important as inflation-induced cost hikes have scared customers away from spending. In 2022, $30 billion of Target’s sales came from own-brand products, a huge chunk of its $109 billion in revenue. Despite beating third-quarter profit expectations, Target fell short in sales and saw a 4.9% decline ahead of the holiday season. The retailer also suffered sales losses due to conservative boycotts of its Pride merch last August.
Walmart cashed in last year on customers trying to stretch their budgets, reporting strong third-quarter gains in November, but is still cautious of spending cutbacks. Target could also be eyeing dollar-store customers, particularly after Dollar Tree raised prices above $1.
But Marshall Fisher, professor of operations, information, and decisions at Wharton, warned that Target’s new budget brand could appear more like a cry for help than a deliberate act to help customers.
“Producing a bundle of 400 low-cost products could be viewed as a Hail Mary, like they’re desperate,” Fisher told Fortune.
Can Target compete as a Walmart wannabe?
For years, Target’s strategic position has been cheap-chic, relying on higher-quality products at slightly higher prices to draw in customers. The retailer committed to the philosophy decades ago amidst slowing sales, and stuck to that ethos for years to successfully launch exclusive brands.
Fisher is dubious that emulating Walmart’s rock-bottom pricing will be effective. It’s just hard to beat Walmart’s prices.
“Pick a few items at Target versus Walmart. What would a basket cost at Walmart versus Target?” Fisher said. “I bet you Walmart is going to come out cheaper.”
But beyond cheap prices, Walmart tapped into the online grocery market, a service appealing to wealthier shoppers looking for convenience, more effectively than Target. Walmart captured over one-third of online grocery sales in 2023’s second quarter, and its e-commerce business grew 24% from 2022. The retailer crushed Amazon in online grocery sales last year and is expected to continue to do so.
Target has been slow to react. The company has been toying with launching a paid membership comparable to Amazon Prime or Walmart+, but has not announced any official plans for the initiative, Bloomberg reported earlier this month.
The yet-to-be-launched service, referred to internally as Project Trident, would reportedly use the grocery delivery business Shipt, which Target bought in 2017. Target has a free loyalty service called Target Circle, which offers rewards and promotions to members, but the paid membership would offer services beyond this.
Right now, Target is trying to be “everything to everyone,” Fisher warns, as the company weighs its options for luring back customers from competitors.
“Target has to decide who they’re competing with,” he said.
