Target, one of the most widely recognized shopping centers in the US, has had a rough week; the company’s stocks slid after it posted lowered expectations for this upcoming holiday season, and investors are worried that the brand may not possess the capacity to lure in customers that it once did. While Target put in an acceptable showing during its third quarter, the upcoming fourth, holiday-centric quarter is likely to hit the retail-giant right where it hurts: the wallet.
Target’s (NASDAQ: TGT) woes began on Wednesday, after the company’s stocks slid suddenly by almost 10% when the news broke that a competitive holiday season should lower stockholder’s financial expectations. There are few times of the year more crucial to retailer’s success than November and December, when Thanksgiving, Black Friday, and Christmas typically ignite a shopping-spree in consumer’s around the nation. But as profits continue to come in at a sluggish pace, experiencing a 21% drop in the third quarter, expectations for a merry holiday season are rapidly melting away.
For shareholders looking for a Christmas bonus, the news is anything but welcome; Wall Street was expecting a profit of $1.24 per share, and with fourth quarter earnings projected to be around $1.05-1.25, fears are growing that the retailer may be in over its head.
Competition is fiercer now for Target than ever before, as it continues to compete against other brick and mortar retailers while taking on giants like Amazon (NASDAQ:AMZN), who are rapidly redefining the business. Should Target hope to remain relevant, it will need to show investors that it can raise revenue figures, and compete with a 21st century business model that’s largely seen consumer shopping shift to the online realm.
While Target noted that digital sales rose by some 24% in the third quarter, said figure is actually lower than the 32% increase it showed in its second quarter. An inability to soothe investor’s fears that it’s not keeping up with digital giants like Amazon and eBay could spell doom for the company in the long-run if it doesn’t get a firmer grip on its operations.
The worst is yet to come
Target isn’t out of stormy seas yet, either; there’s still more room for losses for the company, a fact likely at the forefront of would-be investors minds as they determine who to back in the brick-and-mortar showdown currently being dominated by Walmart (NYSE:WMT). If Target doesn’t put on a better show of retaining more customers and boosting holiday spending, the days where it can realistically compete in an increasingly tight market may be coming to an end.
Having missed fourth quarter profit expectations for the past two years combined, now, expectations on Target to perform better this holiday season are higher than ever. As the company scrambles to expand its delivery service to compete with the likes of Amazon and cuts prices to compete with the savings-centric Walmart, it’s likely to feel the burn from that expansion in its already tight profit margins. For now, investors have ample reason to believe the company may be stuck between a rock and a hard place.
Whether or not Wall Street and MPEx will understand Target’s predicament remains to be seen; common sense says that investors won’t be willing to stick around the company for long if it doesn’t make permanent changes soon that help level the playing field. Taking on Jeff Bezos and the Waltons is easier said than done, however, and could prove to be an insurmountable challenge for the ailing retailer. Walmart’s staggering $270 billion market cap, for instance, compared to Target’s impressive but comparatively meager $30 billion or so, will make it harder for Target to levy the needed financial capital to make the necessary reforms if it intends to stick around for the long-run.
As long-term competitors continue to bite into its profit margins, and more business, particularly lucrative holiday shopping, turns to the digital realm, Target’s current problems are only likely to grow. While it may not yet be time for investors to totally jump ship, it’s clear that there’s a reckoning on the horizon for Target; it’s time to adapt and survive, or wither and die.