Target vs Walmart | 'Target' Demographics | 5

0:05I'm David Brown and this is Business Wars.

0:31So it's Sunday afternoon, and you're all out of toilet paper. Where does your family go to stock up? Are you heading on a Target run, or are you embarking on a journey to your local Walmart? Wherever you end up, there's a good chance you'll be walking out of there with way more than whatever you came in for. But no matter where your loyalties lie, both of these big-box retailers have become staples of American popular culture. We've seen them in movies and TV shows. There's a good chance you or your friends caught the sitcom sleeper hit Superstore, which followed the lives of employees at a Walmart-like fictional chain, Cloud9.

1:06Sorry, where's the bottle water? Oh, that will be in grocery, just down there and to your left. Thanks. Oh, come on. I'm not a hero. I'm not a hero! These big box stores have been household names for decades, but mainstream retail has evolved. It's an e-commerce world, and we're all living in it. and that's forced these stores to pivot their own business strategies. Here to bring us up to speed on how Target and Walmart are tackling the new retail landscape is Sarah Nossauer. She is a retail reporter for the Wall Street Journal whose coverage of Target and Walmart dives into how these stores are navigating some of the industry's biggest shifts.

1:43Sarah is sharing the latest shopping trends with us and speaking to the e-commerce of it all. Stick around because that's coming up next.

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3:41Sarah Nassauer, welcome to Business Wars. Thanks for having me. Hey, can you tell me some of your early experiences with Target and Walmart? Do you recall the first time you went to a Target by any wild chance? I don't recall the first time, but I grew up in Minnesota where Target is headquartered. So I went to many Targets, and it was definitely part of my childhood. And there was a thing that they would do over the holidays. They would have a holiday stuffed animal bear. And I remember my grandmother really hustling always every year to try to get me that bear. So I do have some early Target memories and fewer Walmart memories because I was in Minnesota.

4:19Yeah, well, there you go. My first Target experience, I was a reporter landing because of a snowstorm. We were landing in, I think it was Ames, Iowa or something. I was dressed totally, you know, Southern. I had shorts on in the middle of a snowstorm. And I said, I got to find some clothes. And the first thing out of someone's mouth was, you got to get to Target. And it's like, what's a Target? I mean, you think about Target and Walmart, and in a way, I guess at some level, they're sort of interchangeable, lots of the same products. But I think by and large, maybe you would disagree with this, but I have a sense that people have very different perceptions of each.

5:00In fact, here's a viral TikTok that sort of alludes to this difference. Mama's wrong. Walmart didn't have what I needed. What you going to do now? I got to get dressed so I can go to Target. What's your reaction to that clip, Sarah? It's a really sort of common, like if you Google around or you're looking through TikTok, Twitter, Instagram, there's a lot of sort of high-low comparisons between Walmart and Target. And I find these pretty fascinating. You know, they have different shopper bases, core shopper bases. They're huge. So everyone shops at one of these a lot, right? Or at least sometimes.

5:41but Target's core shopper is higher income than Walmart's and they have very different store footprints. Like I talked about growing up in Minnesota, right? And not really being that familiar with Walmart. The state with the most Walmarts is Texas and Florida and the Southeast and Target started in Minnesota and built its store base out from, you know, the upper Midwest. And so not only do they have sort of different demographic core shoppers to some extent, though that's starting to merge a little bit. They're in different places physically in our country, and we know those places are different.

6:14Yeah. Well, you mentioned Target sort of viewed as the more upscale place to shop. And I know earlier in our series, we talked about how Target early on, I say early on, probably around the 90s, it seemed like, seemed to be turning to designers as a way to distinguish themselves as, I think it's safe to say, a discount retailer. But I'm curious, how do you see that divide actually having emerged? Yeah. Well, they have really different origin stories. So Target came out of a department store, Dayton Hudson. And so their entire sort of cultural background and like the muscles that they had originally as a discounter come from department store instincts, whereas Walmart came from sort of five and dime discounter roots.

6:59So they, even at the very beginning, just had different like muscle memory. Yeah. Well, I love how you describe that with the different muscle memory. It makes a lot more sense to me when you put it that way because, yeah, they came out of that department store versus five and dime culture. But what about how that translates to today? I mean, how do they stack up against each other or do you have a sense of that? I do. Yeah. So one huge difference is that Walmart is primarily a grocery store. Most of its revenue actually comes from groceries. And that's because they evolved into the super center format in the 80s.

7:34So this idea that you sort of had two sides of the box, general merchandise and then grocery, fresh food and cereal and all that. Target has come to grocery later. And so a higher percentage of their sales are from things like clothing, home goods, style oriented items. And again, there's a lot of sort of merging towards each other that's going on now. But from a percentage of revenue, it's still very different. Do you have a sense that that translates into a kind of difference in quality and maybe consistency as well? I don't have a sense that it translates into a difference in quality, but it definitely translates into a difference in just the type of things that they each carry.

8:13You know, Walmart is going to carry a higher percentage of their apparel is going to be functional stuff. Target has lots of functional stuff, too, but they tend to always translate even things like a sock through a high style lens. Walmart is doing that more and more. But, you know, at Walmart, I can get some work boots, some hardcore work boots if I want them. I wouldn't think that every single target in America is going to provide me that. You've reported more high-income shoppers have started flocking toward Walmart for everyday items. And you just made reference to the fact that that gap seems to be closing.

8:48Why do you think that's happening? Right now, so many Americans are cash-strapped because of inflation and higher prices. and we're prioritizing spending on food and other necessities and less on designer throw pillows. So right there, what we talked about, where Target has its strengths and where most of its sales come from tends to be less on the necessity side, whereas Walmart, it tends to be more. And so Walmart has actually said for a few quarters now that more higher-income shoppers, it's gaining market share with that cohort of shoppers, in part because they're coming to Walmart to do grocery shopping and get lower prices.

9:24That's really interesting. I'm curious whether you think this is something that's going to last after whatever this is that we're going through, economically speaking, turns the corner. I'm so curious to find out. I know Walmart is very conscientiously trying to hold on to those shoppers, like they have their attention now and they want to keep them. They've tried to do that in the past. They have definitely tried to sort of mimic how Target thinks about design with clothes and not done a great job at it. But I think that they sort of have the attention of some of those shoppers right now. So I think it remains to be seen if they'll keep them.

9:56And then at the same time, you have Target saying, you know, we sell groceries. We're offering lower price points. We're increasing our marketing around those things. And you can see the change in stores. So they're each kind of trying to, you know, peel off a little bit of each other's shoppers. You know, I have noticed how this is translated on screen. Recently, Walmart had some big name celebs promoting the brand. And in fact, I think we have a clip now from an ad they ran for Mother's Day featuring the rapper Cardi B and comedian Jenny Slate. The ultimate mom hack of Walmart Plus membership.

10:27It's the mother. Mother. Mother. Mother of all savings memberships. So what do you think Walmart's trying to accomplish by enlisting some of these bigger names to promote the brand? I think they're trying to attract a wider group of shoppers, younger shoppers. You know, I think a lot of us older folks tend to use the word millennials, a catch-all for people younger than us. But millennials now are like almost middle age, right? So they're very much parents. And they're going after moms, which tends to be for both Target and Walmart, their core shopper base. You mentioned that Walmart dominates in grocery.

11:05Why do you think Target hasn't been able to capitalize on that in the same way? Because they have been so good at sort of offering design and general merchandise is the term, which is higher margin than grocery. Their stores were built to sell those things. It takes up a lot of space in stores. So I think there's been an ongoing internal debate for years at Target about how much space to devote to fresh food. Do you build new stores that look more like a traditional grocery store? When you sell a lot more fresh food or other items, you need to have a different labor model. It's actually really complex to sell food, and they've been good at the other stuff.

11:42So there's been some healthy debate for years internally there. So do you think that Walmart could sort of flip that around and try to capitalize on, I don't know, more fashionable clothes? Or have they even tried to do that from what you can tell? They have, and they're actively trying now. I think for them, it's always been sort of finding this balance when it comes to fashion, you know, understanding that a lot of their shoppers want to come for them for socks, right, and white T-shirts, and that they don't want to lose those shoppers. And if they go too far in the other direction or prices get too high, they might.

12:16And then more recently, you know, they're doing more partnerships with clothing brands. They've bought some apparel brands. They've sold some apparel brands recently. And they're trying to figure out, like with their own private labels, their store brand clothes or home goods, how can they partner with, they partner with like Drew Barrymore and the Pioneer Woman and other sort of influencers and personalities to try to figure out sort of what's their version of target design. It'll be interesting to see how or whether these stick. Do you have any kind of sense of whether this is going to last or how durable some of these collaborations will be?

12:56I think Walmart probably has a better chance right now than they have in years to attract those types of shoppers. Because the other thing that's happened sort of in parallel to what we've been talking about is that both Target and Walmart have been very threatened by Amazon. And that means investing a lot in home delivery, services that allow you to order online and pick up in a store parking lot or have things delivered to home. And both of the retailers say that higher income shoppers are attracted to those services. Walmart has that pretty ramped up. And because of what's happening in the economy, if people that are wealthier sort of think that the produce at Walmart is good enough or that the clothing that they buy for their kids is fashionable enough, they might have a chance to keep some of those folks.

13:41Yeah. You know, I think I sense an elephant in the room, and we're going to have to touch on the Amazon of it all in just a bit. But could you ever see Walmart getting to a place where consumers rave about their clothing in the same way that they rave about targets? I mean, is that a possibility for Walmart? They're not there yet, but they are certainly trying. One way that they're doing it that I find interesting is sort of marketing their middle-of-the-road-we-serve-everyone approach. They talk about We Dress America, for example. And so I don't think they'll ever be – they have exactly the same approach that Target does and it's messaging around this.

14:23But they definitely are trying to figure out what will stick and resonate and feel real when we talk about our version of style. We're talking with Sarah Nassauer. She is retail reporter for The Wall Street Journal. We've got to grab a few things at Walmart, perhaps, and then get changed for a quick Target run. More Business Wars when we return.

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16:39Hey, welcome back to Business Wars. Our guest is Sarah Nassauer. She is retail reporter at The Wall Street Journal, focusing on big box retailers like Walmart and Target, among others. Now, Sarah, bring us up to speed on how Target and Walmart are performing today. They were killing it during the pandemic. Now inflation up, consumers being a bit more careful, as you were saying, when it comes to their spending habits. Where does this leave retailers right now? Well, Walmart and Target are really perfect examples for sort of the dichotomy that's happening in retail. Target has not reported strong results in recent quarters.

17:12And they say that people, because they are prioritizing necessities with their spending as prices go up, they're buying few of their general merchandise items where Target is really strong. Whereas Walmart has reported strong sales because people are prioritizing groceries and they're known for low prices. And so they're peeling off a little market share in some cases. But this dynamic, they're both saying, hey, people are prioritizing necessities. It's hurting the sales of some of our goods. Also, you know, we all bought so many, you know, patio furniture, grill, all those things. A lot of people bought them earlier in the pandemic, and we don't need to buy another one.

17:49Yeah, a lot of people were buying online, too. And I'm curious about the shift into e-commerce and how they've differed, or have they, between Target and Walmart, from what you can tell. They both see, you know, more people buying online. Target has, especially during the pandemic, the percentage of sales that come through digital channels went up really, really fast. And a lot of that is picking up in a store parking lot. It's not necessarily home delivery. But we've seen that, you know, sort of get flatter at both retailers. Not that it's, you know, sort of off course. There's still a general overall long-term trend to more and more sales happening online.

18:26But we're not seeing the spikes of the early pandemic. Interesting. Now, I'm curious about how Walmart and Target have been and how successful they've been in keeping up with some of the bigger e-commerce companies. What have you noticed in that regard? It's been a huge focus for both of them. They both sort of had a wake-up call, you know, several years ago that this was real and that was really threatening. I think, you know, you also have to keep in mind Walmart is much, much bigger than Target. Much. They don't even really compare in terms of revenue, employees. Walmart's the largest private employer in the country.

18:56So for them, in some ways, it was more, I think, you know, it can take a while to feel like something is an existential threat when you're that big. Yeah. But they got there. and that's why they've invested a lot of money and been willing, frankly, to lose money trying to grow their online business. Well, what about the advantages that brick and mortar, you know, I guess it used to be sort of counterintuitive that brick and mortar stores might have an advantage over e-commerce given that e-commerce was taking off. But are there, from what you can tell, any real advantages that Walmart and Target enjoy when it comes to appealing to the everyday day consumer?

19:32For sure. They have stores. Amazon, you know, that's why they bought Whole Foods. So the stores are a huge advantage in terms of both using them as a shipping hub, in some cases, right, to get goods to our front doors through like the back room of the store, as well as a pickup spot, as well as sometimes, you know, people want to pick out their own produce or you just need something last minute and you don't have time to buy it online. Or that's what some people prefer, right? They want to see and touch things still. You know, when I first started this beat, which is now going on almost 10 years, you know, the narrative at the time was very much that Amazon was going to kill all these retailers.

20:08And that hasn't played out because stores do still have a value. And that's why Amazon's trying to figure out that part of the business. At the end of the day, though, there's still a huge, huge sort of threat to like the traditional model. And that's why we have seen that traditional model change so much. That's why I can go on Target.com and place an order and two hours later pick it up in a store parking lot. See, you anticipated what I was going to ask you about because I've seen like lockers at Walmart where you can pick up stuff that you've ordered online. And I've wondered, is that – do people really use that?

20:36It sounds like you've tried it at Target at least. Well, the lockers I don't think have been wildly successful actually. I'm talking more about you drive up to the parking lot and someone brings you something and puts it in your trunk. Oh, they bring it out. I didn't realize that that was how Target was doing it. Target and Walmart both offer that particular service, drive up. All right. But you don't think that people will order online and walk into the store, that that's a distinction? People do do that, but so far it's proven less popular than bringing it outside. Sometimes people, a high percentage of people will still park their car and go into the store.

21:13Yeah. But I don't know if anyone, if you've ever driven around with kids, young kids especially, and tried to get them out of the car seat and all that rigmarole. And you live in car country, right, which I don't in New York City. You know, you don't want to unbuckle your kids and come into the store every single time. It's fascinating to hear you say this because I've always wondered, why would you go online and order and then go over to the store and pick it up when you could, for example, if you're a Prime member, just do it once. You know, have that shopping interaction once per item as opposed to twice.

21:48Right? I'm curious what you're thinking is on this. I think it's more immediate, right? The way that people are doing, many people are doing a combination of all of these things in any given week. And it's like, you know, I can speak to my own behaviors, but some things I know in advance I'm going to need. And I could order them online and it's fine if they arrive three, four, five, nine days later. Other things, it's not okay for them to arrive nine days later. And I might feel like I'm going to be passing that store and I'm going to order it and it might it'll be ready later today or tomorrow morning and I'm going to pick it up.

22:24Other times you want to go into the store. So I think people are doing a lot of like mixing of all of these new services. Well, I'm curious then, how well do you think or how much of an impact do you think this park and grab or pull up and grab strategy is, you know, is doing for Target and Walmart? And is it enough to really make a difference in the bottom line for either of them? It's enough to make a difference in sales, but so far is not very profitable, right? It's still a higher cost model than when we as shoppers do the work and go into the store and pick something up. Yeah. But it's been wildly successful for each of them in terms of just attracting people to their stores.

23:05Interesting. So you don't get the secondary business of someone coming in and seeing something else that they want to throw into the shopping cart. In some cases, they do. In some cases, they do. Interesting. Now, let's talk about the Walmart Plus subscription. I don't know a whole lot about Walmart Plus. I know that this is something that they've been working with and they seem to be promoting right now. What do you know about the rollout of that program and how it's going? They haven't been very forthcoming on publicly talking about how many members they have and how it's going. I saw an estimate from Morgan Stanley earlier today that said, you know, it's a little bit less than 20 million Americans that they estimate are members.