Target is spiraling as Gen Z and affluent customers fall in love with Walmart

Target, which has long been regarded as the fancier version of its counterpart, had a lackluster quarter. It was so poor that as a result of missing Wall Street profit forecasts, Target’s stock sank a whopping 22% this week.

Meanwhile, Walmart, the world’s largest retailer, had a strong quarter. Sales came in just under $170 billion, in-store sales increased 5.3%, foot traffic jumped 3%—but the big difference was in e-commerce sales, which leapt 22%. 

Some of Walmart’s success was thanks to a new demographic flocking to the discount retailer: people who make more than $100,000 per year. These households accounted for 75% of the company’s gains, Walmart CFO John David Rainey told Yahoo Finance, a demographic typically associated with shopping at Amazon and Target. 

Plus, Walmart has become a haven for younger shoppers with an 18% increase in the demographic’s online purchases during the past year, George Heudorfer, adjunct marketing professor at the University of New Haven’s Pompea College of Business, told Fortune. Meanwhile, “Target has been slower to adopt influencer-driven strategies for its marketplace, missing an opportunity to build similar momentum,” Heudorfer said.

This illustrates not only an acceptance of Walmart, but a trend in Gen Z’s loyalty to a different brand from millennials. Particularly in the past decade, Targetwith its seemingly high-end aesthetics and designer collaborationss, became popular with millennials, who fondly called it “Tar-zhay.” . But now, cost-conscious and social-media-minded Gen Zers have turned to Walmart for their shopping needs. 

“No matter what your budget may be, we have something to offer,” a Walmart spokesperson told Fortune. “That can make people feel really proud of what they’re putting on their table food wise, or wearing apparel wise, or the makeup that they’re buying, from a beauty perspective.”

Target declined Fortune’s request for comment about competing with Walmart, how the brand is appealing to wealthier consumers, or offering more affordable prices. Instead, a spokesperson pointed to a transcript from Target’s investor call held Wednesday.

“Despite these headwinds, we’re encouraged that operating income has grown 6.7% through the first three quarters of the year,” Target CEO and chair Brian C. Cornell said during the earnings call. “We’re highly confident in our proven long-term strategy and in our ability to move beyond this current volatility.”

Walmart wins with younger generations by offering lower prices 

The juxtaposition between these department retailers comes down to two main factors: affordable prices and appealing discretionary products. Walmart has mastered both, enticing both young shoppers and a higher-income demographic. 

“Walmart’s value focus and pricing matter with inflation-minded buyers” is helping it perform stronger than Target, Eric Schiffer, chairman at Reputation Management Consultants, told Fortune. “Target blew it with higher prices on essentials when consumers needed to buckle down to counter inflation.” For example, groceries tend to be more expensive at Target. A 2022 study showed that price differences can be as much as 41%. 

Walmart’s decades-long mantra of “always low prices” continues to have an impact on consumer perceptions of the brand. “Pricing perception is another issue” for Target, Heudorfer said, citing a survey by Statista that found 68% of shoppers still see Walmart as the most affordable option.

To be sure, Target reported they’re seeing a “strong response to promotions,” Cornell said in the company’s earnings call on Wednesday. 

“Consumers are still willing to spend when they find the right combination of newness and value,” Cornell said during the call. “Because they worked hard to control their day-to-day spending, consumers sometimes allow themselves to splurge a little bit when they find the right item or the right seasonal moment arrives.”

In a bid to attract more value-conscious customers, Target announced Black Friday deals of up to 50% on “thousands of items,” with the sale starting this week.

Target doesn’t use enough influencer marketing

Walmart winning with Gen Z is reminiscent of the “Tar-zhay” movement for millennials, when people started referring to the retailer, somewhat ironically, as fancy. Now, social media influencers are making Walmart a cool place to shop, especially for dupes (or cheaper replicas) of expensive home, clothing, and baby items.

Even Target loyalists have started sharing their Walmart finds on TikTok. Take TikTok influencer Bullseyeonthebargain (a name nodding to Target’s iconic logo), who shared a dupe of a Pottery Barn blanket that’s $100 cheaper than the real thing.

“Social media has been a powerful tool for Walmart, particularly on platforms like TikTok, where influencers showcase exclusive collaborations such as Gap Home and Walmart’s private-label clothing lines,” Heudorfer said.

Walmart has outpaced Target’s influencer relationship by staying laser-focused on “price-sensitive consumers,” said Roxy Couse, a TikTok retail influencer and customer experience director at e-commerce platform BloomReach.

“Walmart has successfully positioned itself as the go-to destination for budget-conscious shoppers,” Couse told Fortune. “Meanwhile, Target has been slower to adapt to the current economic climate, with its merchandise strategy appearing less aligned with consumers’ value-seeking behaviors.”

Walmart discretionary items are more appealing to customers 

In an effort to differentiate itself, Target launched several lines of clothing and other discretionary items. But some of them backfired. 

Take Target’s Pride Month clothing and home goods line as an example. While Target told CNN it was “committed to supporting” the LGBTQ community during Pride Month, the company appeared to give into pressures from right-wing consumers who said the line was too woke. In 2023, some consumers were so disgruntled with the Pride Month line that Target’s sales dropped by 5%. This year, Target responded by limiting the number of stores that carried the merchandise this year. 

However, Target responded saying the company is “committed to supporting the LGBTQIA+ community during Pride Month and year-round,” a Target spokesperson told The Associated Press in May.

Target has also taken flak for its other clothing lines, with social media users criticizing a collection of floral dresses as being completely impractical for most people.

“Target has decided if we’re all gonna suffer a pandemic, we might as well look like we just lost the farm after locusts ate our crops,” one Instagram user posted in 2021.

To be sure, Target still retains a loyal customer base—particularly for its customer experience, experts say. Private label brands including Good & Gather and Cat & Jack generated more than $30 billion in sales last year, Heudorfer notes, which is a “testament to Target’s ability to build loyalty. 

“Target is slightly better at the shopping experience with better visuals and collabs,” Sciffer said.