Target Warns of Weak Holiday Shopping Season, Signaling Retail Challenges

New York (CNN) – Target has issued a cautious outlook for the upcoming holiday season, predicting flat sales during the crucial final quarter of the year and reducing its profit forecast. The announcement comes amid sluggish growth, with the retailer reporting a modest 0.3% sales increase in its latest quarter.

The news sent Target’s shares tumbling by approximately 15% in early trading on Wednesday, raising concerns across the retail industry.

As a key indicator of consumer spending and overall retail health, Target’s performance during the holidays is closely watched. While the company has the resources to weather a soft holiday season, smaller retailers rely heavily on strong holiday sales to sustain them through the following months.

Target’s core middle-class customer base has been grappling with rising costs, prompting shoppers to prioritize essentials such as groceries over discretionary items like home decor, electronics, and non-essential apparel.

“Consumers tell us their budgets remain stretched, and they’re shopping carefully as they manage the cumulative impact of multiple years of price inflation,” CEO Brian Cornell stated during a call with analysts.

The company’s struggles are also linked to its product mix and pricing strategy. Target offers a higher proportion of discretionary goods compared to rivals like Walmart and Costco, leaving it more vulnerable to shifts in consumer sentiment. Analyst Joseph Feldman from Telsey Advisory Group noted that Target may be losing market share among middle- and upper-income customers to competitors such as Amazon, Costco, and Walmart.

Despite efforts to attract shoppers by lowering prices on thousands of items, Target’s sales have seen limited improvement. While the retailer has increased its offerings in food and essentials, it still lags behind Walmart, where groceries account for roughly half of sales.

Meanwhile, other retailers are thriving. Walmart reported a 5.3% year-over-year increase in U.S. same-store sales last quarter and an 8.2% rise in profit. Walmart’s success is attributed to market share gains, particularly among upper-income households, which accounted for 75% of its growth. The company has also raised its financial outlook, signaling optimism about the holiday season.

Similarly, TJX Companies, the parent of TJ Maxx and Marshalls, posted solid results, with a 3% increase in same-store sales during its latest quarter and an upward revision of its earnings guidance.

The contrasting performances of major retailers highlight shifting consumer behaviors and intensifying competition in the retail sector as the holiday season approaches.