Report: Target Faces Sustained Weakness and Declining Traffic

Target is “no longer an attractive investment,” a Wells Fargo analyst said Wednesday, citing a range of continued headwinds and challenges.

This, as Edward Kelly, an analyst for the bank, said the retailer’s outlook “has deteriorated meaningfully,” according to a summary of the report Wednesday (Jan. 4) published by Seeking Alpha.

“Our concerns include the potential for a sustained period of comp weakness in general merchandise, an inflection to negative traffic in Q4, a lack of visibility on the timing/magnitude of the margin recovery story, and the return of pre-COVID model scalability concerns,” Kelly said.

Target did not reply to PYMNTS’ request for comment.

The report says Kelly is advising clients to move to a more conservative position, and that investment opportunities in consumer staples retail brands “don’t look particularly compelling” to begin the year.

He named Target as one of the “bottom five” retailers at risk, along with Kroger, Costco, Sprouts Farmers Market and United Natural Foods. Kelly’s top picks included Walmart, BJ’s Wholesale Club and Dollar General.

Target warned investors in November that its crucial holiday sales season would likely not meet expectations, in spite of record levels of promotions aimed at shrinking its inventory.

The news led to a drop in Target’s shares, which are down 35% over the past year months. As PYMNTS noted at the time, that slump “was in stark contrast to the results and market reaction” seen when Walmart released its earnings the day before.

“Many consumers this year have relied on borrowing or dipping into their savings to manage their weekly budgets but for many consumers, those options are starting to run out,” CEO Brian Cornell said on the company’s conference call.

“As a result, our guests are exhibiting increasing price sensitivity, becoming more focused on and responsive to promotions and more hesitant to purchase at full price.”

That’s in keeping with recent PYMNTS research, which found that 60.4% of consumers listed discounts or sales as their primary factor in choosing a retailer.

Rising costs of goods and services in almost every category have stretched most Americans’ wallets: 60% of surveyed consumers say they live paycheck to paycheck, including 43% of those earning over $100,000 per year.

Target’s promotional activities continued after Christmas, as it joined a number of other retailers last week in jump-starting their January clearance sales.

The past few months have also seen Target announce a variety of innovations, such as the addition of Starbucks products to its curbside pick-up offering, as well as a store remodel plan designed to give the retailer more backroom fulfillment space.

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