Diana Smith is the Associate Director for Mintel’s US Retail and Apparel Reports. Diana writes reports and explores trends in the retail and apparel categories.
This week, Target announced Q3 earnings that far exceeded expectations, following similar news from Walmart last week. Here, Mintel Associate Director of Retail & Apparel Diana Smith explains how retailers are evolving to deliver what consumers want and why this is a critical part of their success.
In an age of personalization and curation, mass merchandisers continue to win over shoppers. Target and Walmart exceeded expectations in Q3, announcing that earnings topped estimates, resulting in a revision to year-end forecasts. In fact, Target had a particularly gangbuster quarter, witnessing total sales climb 4.7%. What does this say about today’s shoppers? Do they not care about personalization and curated product selections, prioritizing value and convenience instead? Or are mass merchants figuring out how to give consumers what they really want without asking them to make any trade-offs? Today’s consumers are more demanding than ever, so the answer lies more with retailers’ efforts to listen to – and deliver – what their customers like, enjoy and prefer.
What do consumers want?
Consumers choose where they shop not according to who has the coolest mobile app, the best in-store restaurant, or who has the most parking spaces, but rather where they think they are getting the best overall value. Value can come in the form of dollar savings and this is a key advantage that mass merchandisers provide: 55% consumers think mass merchandisers offer competitive prices. Value can also come in the form of convenience, such as having a desired store nearby, enjoying items delivered to the doorstep as early as the next day, or being able to get everything on the shopping list all at one place. According to Mintel research, nearly three in five consumers say they can buy everything they need at mass merchandisers.
Mass merchandisers are meeting basic needs and consumers continue to reward them with their business. Consumers also want to know that if they go to Target or Walmart (either in-store or online), that these merchants will have items they actually want, and can feel good about buying – items that match their taste, style, wellness and budgetary preferences. To that end, both retailers have been obsessively focused on improving their product offerings across categories that not only focus on affordability, but also quality, and in the case of apparel and accessories, style. It is here where we start to see why these leaders continue to emerge as just that – leaders.
Target, Walmart have improved product offerings across categories that focus on affordability, quality and in the case of apparel and accessories, style.
How Target is delivering what consumers want
While Walmart and Amazon continue to throw curveballs at each other, Target has been quietly overhauling its stores and its merchandise. The company is testing – and seeing success in – small format stores that allow it to gain distribution in places where a regular sized Target “wouldn’t fit,” such as in urban centers and college campuses. Additionally, it has refreshed stores (1,000 expected by 2020) and the changes are dramatic. Stores are clean, organized, well-lit and inviting. More than two in five mass merchandiser shoppers associate Target with having a pleasant store environment, according to Mintel research.
From a merchandise perspective, apparel has been an area of focus. Target is heavily prioritizing its own private label brands and has introduced a number of new clothing brands that consumers actually want, including Ava & Viv, a plus-size brand; A New Day, a women’s clothing line; JoyLab, an activewear offering; Auden; a lingerie line; Goodfellow & Co., a men’s clothing collection; and Cat & Jack for kids. These items are cute, stylish, affordable, and appeal to young shoppers (namely females) who want to wear the latest fashion trends, but don’t want to pay name brand prices. According to Mintel research on women’s clothing, most women associate with practicality and affordability, and Target’s private label fashion brands deliver on these attributes in spades.
Target also continues to offer highly sought-after collaborations with well-known designer brands such as Lilly Pulitzer, Hunter, and more. Through these collaborations, Target guests gain access to brands that might otherwise fall out of their price range, reinforcing how the company provides value. In September 2019, Target celebrated its 20th anniversary of designer collaborations with a special line featuring some of the historical brands that garnered excitement. Target reported its apparel sales were up 10% in Q3, claiming this was accompanied by some of the most dramatic share shifts ever seen in the sector.
How Walmart is delivering what consumers want
As the largest retailer in the world, Walmart continues to be ahead of the innovation curve, but its investments in grocery are what is paying dividends for the company. Mintel research on grocery shoppers shows that Walmart is the second-most retailer shopped behind grocery stores, and grocery comprises well over half of Walmart’s US sales. Key to its success has been its expansive rollout of pickup locations for online orders, now offered at more than 2,700 locations. Consumers on the whole aren’t even sure they want to buy their groceries online, but Walmart is certainly giving them a number of reasons to try it out. Its pickup services have proven effective: about a fifth of grocery shoppers prefer to order online and pick up items at the store because they like to maintain control over when they get their items, ensure the order is correct, and that the selected items match their standards. Online grocery ordering at Walmart is heavily influencing the 41% gain in online sales the company garnered in Q3, clearly showing that consumers are finding it easy to find what they want on the site (half say this is the top reason for choosing where they shop online) and finding satisfaction with the items and brands offered (one-quarter say this drives retailer preference). Walmart is already working on what’s next by testing new forms of delivery, including in-refrigerator delivery and via autonomous cars. While consumers aren’t quite ready for this yet, Walmart will be ready when they are.
What we think
Mass merchandisers are pivoting from being all things to all people to offering more products that consumers actually want to buy and more services that consumers find convenient. In other words, they’re adding value, and their sales success reflects this. Expect Target and Walmart’s success to extend into the holidays: Mintel research regarding where consumers plan to shop this holiday season has mass merchandisers on top, with seven in 10 expecting to pay a visit.
Analyst’s sidenote: It’s interesting to observe that Amazon’s Q3 earnings missed street expectations, and the retailer set dismal expectations for the holiday season. Much could be interpreted from this, but if anything, its decline against Walmart and Target’s wins shows that consumers still find value in physical retail. Even Amazon knows this, as it forges ahead to expand into brick and mortar, with plans to open its own grocery store separate from Whole Foods.