Target (TGT) is a discount retailer which generates revenue by offering competitively-priced consumer goods. Similar companies competing directly with Target include Wal-Mart Stores (WMT) and Costco Wholesale (COST). Businesses in the retail industry do not produce products directly and must obtain their goods using contracts with manufacturers. The discount retail industry at large has come under increasing pressure as a result of the convenience and comparative price model offered by Amazon (AMZN) — and Target is no exception.
Target reported Q3 2018 earnings on November 20, 2018. The discount retail company reported $17.82 billion in revenue this quarter, compared to $16.67 billion over the same period last year.
A Look at the Discount Retail Sector
Department stores such as Target, Walmart, and Costco provide customers with a broad range of products and maintain complex inventory management systems. These stores sell products to consumers at lower prices and rely on staple consumer goods such as basic clothing, household products, and food.
Consumer disposable income significantly influences sales. The general economy's overall health often correlates closely with retail sales and profitability for discount retailers such as Target. Future growth for these companies depends on the ability to thrive under highly competitive conditions, forcing retailers to think smart creative strategies to retain a market presence.
The Demographics of Discount Retail Shoppers
Target typically appeals to customers who enjoy higher incomes by emphasizing high-quality merchandise and low-cost designer fashion. Walmart's emphasis on low prices typically draws shoppers with lower household incomes. Costco shoppers are often affluent, suffering less direct impact from general market recession than Target and Walmart customers.
Target competes directly with Costco for these customers while also striving to compete with Walmart's prices, positioning itself competitively among lower-income shoppers. Future growth for discount retailers such as Target relies on the ability to connect with customers, keep margins strong enough to provide investors with a solid profit and benefit from current economic conditions. These companies must provide products which drive sales by motivating customers to shop.
Many retailers open new stores to drive additional growth. They also add products, such as food, which many department stores began selling to encourage sales growth. Strong competition motivates many retailers to reduce margins in order to remain competitive on pricing. Although margin reduction as a strategy may improve prices, it also leaves smaller profits for investors.
Managing Inventories and Fulfillment
Target got serious about its delivery operations in December of 2017 with the announcement that it was buying Shipt, an online delivery company, for $550 million. This new offering allows Target to deliver products and groceries to consumers within hours of online purchase. Good inventory management strategies also help retailers achieve higher profit margins. Offering fewer brands than Target and Walmart, Costco seeks to improve supply chain efficiency.
Costco, Target, and Walmart all keep profit margins as high as possible and seek cost-reduction measures as a means of increasing profit. During lean economic conditions, expansion into competitor territories often helps retailers gain market share while protecting profit margins by closing stores with poor sales performances.