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Suzy Davidkhanian (00:00):

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(00:22):

Hi, everyone. Today is Wednesday, March 18th. Welcome to eMarketer's weekly retail show, Reimagining Retail, an eMarketer podcast made possible by Rokt. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Suzy Davidkhanian. On today's episode, we're unpacking the longstanding rivalry between Walmart and Target, not to crown a winner, but to see if they were ever even really competing with one another. Joining me today are two podcast regulars, analyst Rachel Wolff, who's a few blocks away. Hey, Rachel.

Rachel Wolff (00:54):

Hey, Suzy. Hey, Sky. Spoiler alert.

Suzy Davidkhanian (00:57):

I love that. Thank you. And hi, Sky. Welcome back, Crystal Analyst, Sky Canaves, joining us from Texas.

Sky Canaves (01:04):

Hi, it's nice to be back.

Suzy Davidkhanian (01:05):

This week, we're talking about two big box retailers that have been compared for decades. Walmart built its business on value and scale with grocery as the traffic driving hub, while Target built its brand on product, design, and fun. Different foundations, but constantly framed as rivals. Then the last five years happened, a pandemic, supply chain chaos, inflation, trade down behavior, and a customer who really hasn't gone back to normal. It's been sustained disruption and uncertainty for a very long time, and that's changed how each of them are viewed and how people are shopping. Now both companies have new CEOs, both promoted from within, but both CEOs are stepping into very different realities. One is building from strength, the other is working through a turnaround. If we strip away all the headlines and we don't really think about stock performance, were Walmart and Target ever really competing on the same promise that mass retail is supposed to deliver against, or were they solving different consumer needs all along? Where did this rivalry come from?

Sky Canaves (02:08):

I think part of it is just that they're the only two big mass retailers in the U.S. that have a national footprint and that can satisfy a lot of consumer needs in stores, in physical channels versus Amazon that now does that online. But Walmart's many times bigger than Target. It has upwards of 5,000 stores and Target is about a fifth of that size. So in that sense, they've become very different just because they then serve different consumer needs just by virtue of their geographic or physical locations.

Rachel Wolff (02:47):

And I think there has also been a lot of convergence over the past few years since the pandemic. Target is leaning more into grocery, which has been Walmart's strength for a really long time. And now we're seeing Walmart leaning further into soft goods like apparel. So I think there really seems to be maybe even more overlap these days than there might've been in the past.

Suzy Davidkhanian (03:07):

So do you feel like... Because I think at the end of the day for a retailer, it is driven around the mission of the trip and if you're going for value or for fun or for fashion. Do we feel like they are starting to converge in a way that they're trading consumers against one another?

Rachel Wolff (03:23):

I think definitely. I was really interested to read about their apparel business, which typically when you think of mass market apparel, you think of Target. But Walmart fashion, they have six brands that have a billion dollars or more in revenues annually, which is pretty significant. And 40% of them come from households that make over $100,000, which again is typically what you would associate with Target. They have always been very good at drawing in that upper income consumer. So I think, yeah, I do think that Walmart is sort of taking over maybe that style designation that Target has owned for a long time.

Sky Canaves (03:56):

And it's concerning that the last couple of years have been really strong for beauty and apparel sales in the U.S. overall. And Target hasn't been keeping up with that growth. They've actually, their growth has been well below the average for retail, and we see that in e-commerce as well, whereas Walmart has been growing in those categories much faster, so has Amazon. And I think some of the fun has also shifted away from Target to other retailers and channels. You see the growth of TikTok shop, for example, as a place for discovery and now purchase, but also driving sales to other retailers. Or in physical retail, the strength from Costco or TJ Maxx where the definition of fun has changed a bit and I guess Target's offer of fun hasn't been as compelling and they've also been be set by other political issues that have maybe alienated some of their customer base that used to think of them as fun that now has second thoughts because of that.

Suzy Davidkhanian (05:02):

So it sounds like the neck and neck narrative is probably more realistic now than it was pre-pandemic, but am I being too simplistic in asking if this is about sustained disruption and uncertainty that has really brought them neck and neck and now we're favoring more scale and essential, plus Walmart is trying to figure out a little bit more fashion and fun and jumping onto that halo effect? Or is this still the environment that price and convenience wins?

Rachel Wolff (05:30):

I think there's certainly an element of people searching for value, but as Sky pointed out, there are channels like TikTok shop or off price retailers that are doing tremendously well because they are able to offer that fun experience. So I think it's less so that people are laser focused on essentials and more that Target has had maybe some operational difficulties over the past few years that have made it difficult for them to deliver an experience that shoppers can look forward to.

Sky Canaves (05:57):

And they haven't leveled up the fun in their stores apart from what they talk about in terms of merchandise and products, collaborations, things like that. But when we think more broadly about experiential retail and the opportunities that they could be taking advantage of with things like events or sampling or demos or popups, they haven't really done any of that or not that I've seen. And I think maybe that gets back to the issue that they've had with investment in stores and store associates that they haven't been spending enough there or prioritizing that enough, even though they've said they have been going to for some time now and now really seem to be putting a lot more money behind it.

Suzy Davidkhanian (06:38):

Well, we do think brands carry a strong halo effect. And I heard what you guys said about the structural impact of what happened with COVID and operationally that there were some issues, but do we feel like fun is more of a cyclical nature, especially when the consumer is so fragile? And I feel like the difference for me at least from a Walmart and a Target is that squeezed middle where Target sits sort of in this weird luxury but not really luxury place. And if they haven't been leaning in so much into that fun target sort of branding or no, is that just a-

Sky Canaves (07:14):

Yeah. I would say when consumers are squeezed and feeling fragile and stressed about all sorts of things, the fun element of retail becomes even more important and that's where we do see other retailers or other channels have been able to leverage that. People kind of want that escapism through the retail therapy that they can find. It's just that Target hasn't offered the compelling enough value in that fun for them. So even with the merchandising that they do or the products they have available, I think even there, there's that trade off of fun for a good price where people can go off price and find a designer handbag, maybe for the same price as one of the target handbags that might be a collaboration, but isn't quite as nice in terms of its quality and value to the consumer. And that kind of treasure hunt feel and experience that consumers are looking for.

Suzy Davidkhanian (08:09):

Right. So it sounds like maybe there's also a traffic issue and often essentials help drive traffic. And so Target, as Rachel was saying, is trying to go more into grocery. But I think another driver of traffic is loyalty programs, and they're both so different between the different retailers. How do those differences reveal how each of them plan to grow? I'm not just thinking about the consumer and the rewards, but also through data and monetization.

Rachel Wolff (08:36):

What I think is interesting about the difference between the two is that Walmart+ is really mostly about driving e-commerce purchases. If you look at the breakdown of the benefits, for the most part, it's you get free shipping, faster shipping, those kinds of perks. But for Target, while they do have that for their paid membership, they seems like for the next year, they're really leaning on the sort of experiential perks that you can get. They're planning on offering Starbucks promotions and category specific deals. And so I think the idea there is very much to draw people into the store because that's when you get people making impulse purchases, right? Whereas for Walmart, it's more about driving frequency in the e-commerce business. So I think that's one notable difference between the two.

Sky Canaves (09:18):

I think that's a good point. And one that may be converging because as I was working on my mobile app shopping report late last year, I came across statements from both Walmart and Target executives talking about how much more in store shoppers who use their mobile apps spend in store versus the ones who don't. So I think that's maybe kind of woken up Walmart to the value of the in store shopper using its app. And often that's a loyalty member as well. But I think in terms of their approach to loyalty, I think Walmart, since it started Walmart+ about five years ago or so, it was very much working with the Amazon model in mind, the Amazon flywheel effect. You have a strong loyalty, you have a loyalty program that people buy into and by what you offer, the convenience, the delivery, you draw more consumers, you increase their purchasing.

(10:14):

It makes it an attractive platform to recruit marketplace sellers that then provide a source of revenue for retail media networks, and it kind of spurs the flywheel and it keeps growing. So it very much followed the Amazon playbook. I don't think Target has had the similar strategy in its loyalty program or how it's connected to its retail media and marketplace strategies because it started off with a free loyalty program. It just recently, well about now I believe two years ago, launched into a paid loyalty offering, Target Circle 360. But it already had a marketplace that was separate and it's still a curated marketplace, so it doesn't get that long tail of advertisers that you get with huge marketplaces like Walmarts and Amazons that then drive the real rapid revenue growth for the retail media network.

Suzy Davidkhanian (11:09):

So loyalty programs equal a structural component to helping with growth. And it takes me to this idea around retail was really just about a really good product, we used to say product is king, and a really strong customer experience, but now it feels like it's so much more than that. It's the product, the experience, data, ads, marketplaces, delivery. I can keep going on and on. So how do you balance building a true ecosystem without losing the plot? Or do you even do that? Can you still just compete on a fun product merchant first strategy?

Rachel Wolff (11:43):

Bring it back to Walmart and Target. I think the difference is that Walmart had a very clear vision of how they wanted to execute this push into e-commerce and attracting higher income consumers, and they had a very clear sense of how everything could work together. But with Target, it seems a little bit more haphazard, right? They had their marketplace, they have this loyalty program, they have a growing e-commerce business, but it doesn't seem like they've really connected the dots and they haven't thought about the consumer necessarily and how to make the consumer experience as seamless as possible and meld all those things together. So I think it really is being able to take a step back and maybe have that five, 10-year view to see what needs to be done to drive that next gear of growth.

Sky Canaves (12:21):

Yeah, I agree with the point about the consumer and meeting the consumer needs first and understanding what they are and how whatever the business does is going to have to create a positive customer experience, which is somewhere where I think Target has really lagged. There have been so many reports, I've seen it firsthand about the mess that a lot of its stores have become with just merchandise all over the floor, literally all over the place because they haven't invested in the store associates. The store associates are still, I think, pretty few and far between, and that's something they've acknowledged with their plan to increase investment in stores and do more hiring in stores. And that's the very basics of customer service. And I think that spills over into e-commerce as well, what are the consumer needs that can be met through e-commerce? Walmart was savvy to realize that it's fast and free delivery with a lower order threshold, and that's really fueled the growth of its online business, particularly in groceries.

(13:25):

And it just happened to come at a time when more customers, more affluent consumers are looking for a strong value and to save money and they can do that through Walmart+.

Suzy Davidkhanian (13:36):

So it sounds like you need to be successful in '26, have multiple revenue streams, you need to be tech forward, but you still have to think about the experience of the consumer in store, online, the delivery experience, all of it, right? It's so many things. It's too simplistic to whittle it down to platform versus merchant as your core identity in terms of Walmart being the platform and the hub and Target much more merchant driven. But that says there are many who will say that what drives behavior is this idea of brand love, being relevant, but also convenient and a good price, and all of that sort of comes together to create stickiness. Given everything you guys have just said, how do we think about that from a target perspective?

Rachel Wolff (14:19):

Well, this is maybe a strategy that Target hasn't adopted, but I think maybe they do need an outside perspective of what can the company do to make their merchandising more relevant, to get closer to that customer and be able to anticipate the fact that people don't like messy stores and having shelves that don't have any product on them.

Sky Canaves (14:41):

And these are issues that have been going on for years. This isn't just the last six months. This is years ago being noticed. And they've talked about it. They've acknowledged it for years, and yet they're still talking about fixing it.

Suzy Davidkhanian (14:55):

A lapse.

Sky Canaves (14:55):

Yeah.

Suzy Davidkhanian (14:56):

But it sounds like they were leaning into cool being able to amplify and create more traffic, but-

Rachel Wolff (15:03):

I don't think there's anything wrong with their strategy necessarily. It's more a question of, do they have the right team or the right mindset to execute on that strategy? Walmart has been able, talked about their fashion business, but they are able to deliver that kind of newness and style and whatever it is that people want on more or less the same timetable. And Target should have that advantage. So the fact that they haven't been able to do that, I think speaks to maybe some internal gumming of the works maybe.

Suzy Davidkhanian (15:34):

And I guess that's a good place to wrap up in terms of if we do zoom out, do we feel like this story, the new CEOs coming in, they're both from within, one is really leaning into momentum and continuing to grow. The other one is thinking about turnaround. Is the story then about the business model or is it more about execution, Sky?

Sky Canaves (15:55):

Gosh, I think it's hard to separate the two because yeah, they need to find new strategies to drive growth. And that may require shifting their business model, looking a bit more expansively into partnerships and how they can become one plus one equals three, not just on their own. Because even Walmart is forging partnerships with others, especially in tech with OpenAI and really focusing on what's five or 10 years ahead. And meanwhile, Target is still losing customers, losing share, not generating really any significant e-commerce growth at a time when all of its rivals are. So where are they going to find that?

Rachel Wolff (16:39):

I agree with Sky. I think it's a combination of both, but I do think that execution has been Target's challenge. They have all the ingredients, just a question of bringing them together in a way that makes sense for the organization and makes sense for their customer base.

Suzy Davidkhanian (16:52):

And when we think about execution, are we also thinking about increasing store footprint, thinking about the connectivity between online and in store and how all that comes together? Or are we really thinking about it from a merchant perspective?

Sky Canaves (17:06):

I'm thinking of all around execution. The store footprint is something that is part of it, but I don't think... They still need to fix their comps basically. They need to generate growth in their stores. Part of what I was thinking about execution is also just what they stand for and how that's impacted the sentiment towards them from some of their most loyal customers. That's an area where their execution hasn't really met expectations, whether it's on DEI or the ICE activity in Minneapolis. I think people have felt let down by target that they didn't take a stronger stand. Whereas Walmart doesn't face similar challenges because it's so mass. It's never been expected to take these positions that then could have an impact on their sales.

Suzy Davidkhanian (17:58):

And I think the other thing for me between the two is private label, right? You need to have really, really strong differentiated private label because that's what's going to drive traffic. And like you were saying, Rachel, Walmart is really going in on private label and differentiation and going through this good, better, best, for Walmart at least, strategy, which differentiate themselves, but it's also an execution component.

Sky Canaves (18:20):

Yeah. Target has great private label brands and has for years. And I think that's where the value and price points come in where if consumers are trading down, maybe they will look to Walmart's private labels or even the off-price channels instead of Target's private label brands.

Suzy Davidkhanian (18:40):

Right. But you can't rest on nostalgia. You have to stay currently relevant. We could keep talking about this. There's so much we haven't talked about, livestream shopping, how to think about offsetting stores versus e-comm, marketplaces. The list goes on and on, but unfortunately, that's all the time we have for today. Thanks so much, Rachel.

Rachel Wolff (18:58):

Thanks, Suzy.

Suzy Davidkhanian (18:59):

And thanks, Sky.

Sky Canaves (19:00):

Thanks. Always a pleasure.

Suzy Davidkhanian (19:01):

And thank you listeners and to our team that edits the podcast. Please leave a rating or review and remember to subscribe. I'll see you for more Reimagining Retail next Wednesday. And on Friday, join another episode of Behind the Numbers, an eMarketer podcast made possible by Rokt. The end. I sent you guys the questions. I'm very excited. It's our usual talk to one another, pretend like we're in the coffeehouse, whatever, that didn't come out right. It might be a long, long recording. Be ready. No, I'm just joking. I walked so fast I'm full of energy.