Target and Macy's are seeing two-tailed results, driven by completely opposite strategies to increase their profit. Macy's wants to rely on its luxury market, while Target focuses on providing value.
Target's value-focused strategy pays off
Target has managed to reverse its sales flop by focusing exclusively on lowering prices and providing its customers with a more efficient customer experience.
Target's stock is up approximately 23.5% compared to last year, bolstered by a nearly a 12% increase Wednesday. The store also saw a 40% increase in earnings per share compared to the previous year.
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The company's net sales increased by 2%, and its revenue is 4.3% higher than last year.
In its Q2 earnings report, Target attributes its success to its focus on customers' needs. The company strives to deliver everyday value to its clients by reducing prices based on seasonality and enhancing its digital experience by simplifying customers' experience.
"Over the summer, we reduced our prices on about 5,000 frequently purchased items in many markets, and we saw an acceleration in both our unit and dollar sales trends in these businesses," said Brian C. Cornell, Chair and Chief Executive Officer, during the Q2 earnings call.
When it comes to shopping efficiently, Target cracked the code by focusing on its digital experience, which yielded more than two-thirds of sales due to the convenience of its same-day delivery services led by Drive Up and Target Circle 360.
Target's focus on providing tailored value to its customers has grown store traffic by 3% compared to the prior year and more than 20% since 2019.
The company has managed to reach the consumer directly through Roundel, its advertising business integrated into Target Circle 360. Roundel gains deep customer insights by analyzing clients' needs and providing personalized offers that prioritize value.
In Q2, Target Circle 360 attracted more than 2 million new members, allowing Target to offer its customers four times more offers than last year.
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But people are still spending money on things other than necessities, as shown by Target's apparel sales, which increased by 3% and beauty by 9% compared to the previous year.
“In an environment where consumers continue to make meaningful trade-offs, our results demonstrate the power that comes from the right combination of newness, seasonal relevance, and compelling value,” said Cornell in the earnings call.
Macy's luxury-driven focus yields a quarterly decline
On the other hand, Macy's is putting all bets on its luxury brands and maintaining high prices, yet this strategy seems to be falling short.
Macy's stock is up by only 2.5% compared to last year, yet it is down almost 13% Wednesday following its earnings release.
The company's net sales decreased by 3.8%, and its revenue lowered by approximately 3.6% compared to the previous year.
To accelerate the company's growth, Macy's plans to close around 150 underperforming Macy's stores by 2026 and shift its focus to growing luxury store locations by around 20%.
While the company insists its luxury brands yield positive results, Bloomingdale's net sales decreased by 0.2% and Bluemercury's increased by 1.7% compared to last year.
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During Macy's earnings call, the company stated that its luxury brands keep customers engaged. They claim to see the most positive results from higher full-price sell-throughs, private brand expansion, and sparing promotional discounts.
One of the reasons Macy's wants to prioritize its luxury vendors might be that its marketing heavily relies on events funded by the brands, such as the Macy's Flower Show, the Macy's Thanksgiving Day Parade, and its holiday windows.
The company says it makes decisions based on what it sees in the market and allocates resources appropriately to drive business.
Chairman and CEO Tony Spring says the luxury consumer has the money to spend at their stores yet is still cautious about how it does so.
"Our challenge is to create a compelling reason for the customer to buy at Macy's, Bloomingdale's and Bluemercury, and we have that in our inventory composition," said Spring in the earnings call.
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