Walmart and Target

Walmart and Target were punished by investors for not raising prices more

Both Walmart and Target surpassed Wall Street expectations with record third quarters, but were punished by investors for not raising prices more. “Walmart and Target put up strong third-quarter performances this week, beat Wall Street’s expectations and spoke of holiday shoppers already starting to splurge on gifts and gatherings this season. Yet the investor response was swift: A brutal sell-off.Target shares closed down about 5% Wednesday. Walmart closed down nearly 3% on Tuesday, after its earnings report. Shares continued to drop Wednesday, erasing all its gains year-to-date. The two sides are at odds on the retailers’ strategy of absorbing some of the rising costs of shipping, labor and materials rather than passing them on to customers with higher prices. Both Walmart CEO Doug McMillon and Target CEO Brian Cornell have drawn a clear line. Their strategy: Keep prices low in a bid for customer loyalty — even if it means a hit to profits. The pushback they’re hearing is: Why not charge shoppers more? Americans have had a ravenous appetite for shopping. They socked away money during the pandemic and the holiday forecasts are rosy.” (CNBC, 11/17/2021)

Another analyst noted that Target and Walmart had a harder time raising prices because of their focus on essentials like groceries, where people are more attuned to price. “On the other hand, margins for Target and Walmart fell in the latest quarter, in part because they have a harder time raising prices. Much of their sales come from essentials such as groceries, D.A. Davidson analyst Michael Baker noted. Consumers are very attuned to groceries because they buy them every week, so they notice higher prices right away. People only buy tools and appliances once in a while, so they don’t feel as strongly about how much those items should cost, Mr. Baker said.” (Wall Street Journal, 11/17/2021)