U.S. retail stocks fell on Wednesday as weak earnings from Target confirmed investors’ biggest worries about consumers and weighed on other retailers that have yet to report results.
Target (TGT-US) tumbled nearly 25% on Wednesday, as peers fell together, such as Kohl’s (KSS-US)、General (DG-US) fell more than 11%, Best Buy (BBY-US) and Urban Outfitters (URBN-US) fell more than 10%.
Of course, it’s not fair to blame Target alone for dragging the industry down, as it wasn’t the first or only retailer to report a poor quarter.
Global retail giant Walmart (WMT-US) also reported lacklustre results on Tuesday, after a string of big e-commerce earnings reports that sounded alarm bells for consumers, such as Amazon.com (AMZN-US) and Etsy (ETSY-US), and Target’s earnings were just further confirmation of this: retail consumers are indeed struggling.
Retail sales data show that consumers are still spending, but they are actually being forced to spend because inflation forces them to spend more to get the same services or goods as last year.
Moreover, after the Covid-19 pandemic shut down numerous events, the top priority for pent-up U.S. consumers is spending money on these experiences, not shopping.
Target’s earnings report also showed several things to the market. First, Walmart’s poor quarter was not simply a management error. Furthermore, weak performance is not simply an e-commerce issue. Third, shoppers’ spending on non-essentials has been falling. In the end, even higher-income consumers will be held back by inflation.
Target has been a huge winner throughout the pandemic, so ahead of the earnings report, investors are expecting the company to shine again to confirm that other retailers’ lacklustre results are their own problem. But it now appears that the industry as a whole can hardly deny the existence of inflation, supply chain constraints and rising labor and transportation costs.