Target cuts prices on thousands of basic items to lure budget shoppers away from Walmart

Target will slash prices on thousands of everyday basics from bread to diapers this summer in an attempt to appeal to cash-strapped consumers and compete with its discount rival Walmart.

The Monday announcement came just a couple of days before Target releases its first financials for the year Wednesday and less than a week after Walmart’s strong earnings shot its shares to a record high as the budget retailer continues to gain more affluent shoppers who are typically Target’s demographic.

Target has been in a rut for almost a year with customers cutting back on discretionary shopping, and with this new price reduction, the Minneapolis-based retailer seems to be targeting Walmart’s usual budget shopper in return.

“We’ll be lowering prices on approximately 5,000 of your favorite food, beverage and household essentials items, a move that will collectively save our guests millions of dollars this summer,” Target said in a news release. “These reductions are in addition to our everyday low prices, which we routinely adjust to be competitive in the market and make sure you enjoy great value every day.”

Customers can look for red tags on essential items like milk, meat, fruit, paper towels and more for the lower prices. There are 1,500 price reductions already on shelves. The savings won’t just be on Target’s private-label merchandise but on brand-name products as well.

The lines between a stereotypical Target and Walmart customer have blurred, said Steve Dennis, a Dallas-based retail expert and founder of SageBerry Consulting.

“I almost feel like for years, even though Target and Walmart, in some respects, are pretty similar business models, I think it was almost as if people sort of thought that they weren’t really competitors because there was this idea of the Target customer being more upscale and the Walmart customer being meaningfully more downscale,” Dennis said. “... If there really is more overlap, and if Walmart is, in fact, becoming more of an acceptable brand to somewhat more affluent customers, then you have this rivalry being kicked up a whole new level.”

Last month, Walmart launched its premium, private-label food brand Bettergoods, which many believe is a direct swipe at Target’s nearly $4 billion Good & Gather grocery brand. Given the Bettergoods announcement, Toopan Bagchi, founder and managing director of Twin Cities retail consultancy Starship Advisors, said he wasn’t surprised to see Target push back.

“Coming out of the pandemic, Walmart has consistently outperformed Target as consumers continue to struggle with inflation,” Bagchi said. “Especially troubling for Target is Walmart’s recent share gain in higher margin general merchandise from higher-income shoppers, Target’s traditionally insulated stronghold.”

Walmart has a bigger footprint than Target, so “if you’re Target, you’ve got to take that seriously because Walmart is obviously bigger than you,” Dennis said.

Walmart raised its forecast for the rest of the year last week after it reported its U.S. comparable sales were up nearly 4%.

“We’re seeing higher engagement across income cohorts, with upper-income households continuing to account for the majority of the share gains,” said Walmart Chief Financial Officer John Rainey in a call with analysts.

Target, on the other hand, has seen sales lag since last spring. Same-store sales were down more than 4% in November, December and January. Target leaders predicted sales would be down around the same for February, March and April.

Since grocery is already a low-margin business that serves as more of a traffic-driver for Target, Target needs to work hard to stay competitive with food pricing to bring customers into stores so they hopefully buy other items, said Carol Spieckerman, retail expert and head of Spieckerman Retail consultancy.

“It’s critical that Target remain in step with the competition to maintain conversions to more profitable categories,” she said.