Inflation is biting into Target’s ‘Tar-zhay’ luster | CNN Business

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CNN
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Target has spent decades building a reputation for cheap chic home goods, clothing and other merchandise. But surging prices in recent years dented the luster of “Tar-zhay.”

The company reported Wednesday that sales at stores open for at least one year dropped 3.7% during its latest quarter from a year ago. It was the fourth-straight quarter of sales declines at Target (TGT). The company’s stock fell around 7% during pre-market trading.

Sales dropped primarily in discretionary categories last quarter, Target said, continuing a trend during the inflation spike in which customers spend on necessary items but pare back on stuff they don’t really need.

Target is a bellwether for consumers’ spending habits and the retail sector as a whole. Target’s core middle-class customer base has been strained by higher prices and pulled back on discretionary goods like home decor, electronics and nonessential clothing in favor of groceries and everyday essentials.

Target has also slumped because of its merchandise mix and higher prices compared to rivals like Walmart.

The chain stocks more non-essential merchandise compared to competitors such as Walmart (WMT) and Costco (COST). More than half of Target’s merchandise is discretionary. Target in recent years has added more food and essentials to its stores, but still trails Walmart, which gets around half of sales from groceries.

Walmart’s sales increased 3.8% last quarter.

Target is trying to lure back shoppers by cutting prices on some key items and adding its own brands.

Target has slashed prices on more than 1,500 popular items starting Monday, ranging from butter to laundry detergent, as the retailer attempts to attract inflation-wary shoppers turned off by high prices.

The company also recently created a new house brand called Dealworthy to take on dollar stores and Walmart. The budget-friendly lineup consists of 400 items, from phone chargers to disposable plates and even underwear.