Target’s third-quarter profits fell by 52% due to an unexpected and potentially worrying decline in consumer spending before the holiday shopping season, which caused the retailer to lower prices as Americans felt the pinch of inflation.
Because of what it has observed from its consumers recently, the Minneapolis store expressed caution regarding its sales and profit during the fourth quarter.
They also limit their spending in other ways, like waiting for sales rather than paying the total price for items.
Target’s stock fell 13%, and other shops fell as well. Macy’s, Kohl’s, and Nordstrom all experienced 6% declines.
Shares of Walmart were unchanged.
Target announced it would cut costs to save $2 to $3 billion over the following three years. According to officials, these cost savings won’t include mass layoffs or hiring freezes.
Target’s gloomy quarter debuts against a background of American customers’ resilience.
Although there was some noise in the U.S. report on Wednesday, retail sales increased by 1.3% in October compared to September.
According to experts at TD Securities, the increase was driven mainly by the sale of cars and rising petrol prices, but those car sales may have been further boosted by Hurricane Ian, which made landfall in late September and may have destroyed up to 70,000 vehicles.
Nevertheless, retail expenditure increased by 0.9% last month, excluding vehicles and gas.
Spending patterns have also changed, with many Americans switching to less expensive options and retailers where they believe they may get better deals.
That was clear at Walmart, which released results that were higher than anticipated on Tuesday.
One contributing cause is that groceries account for more than 50% of Walmart’s U.S. business, compared to 20% at Target.
With price increases everywhere, households prioritize necessities like food and shelter.
Retailers are about to enter the unofficial start of the holiday season, the most crucial time of the year, and that dynamic is already in play.