Walmart Was A More Essential Retailer Than Target In Q2

Walmart
WMT
is coming off a second quarter where its U.S. same-store sales, excluding fuel, grew 6.4 percent year-over-year. Target
TGT
, on the other hand, saw its same-store sales fall 5.4 percent. What did Walmart go right and where did Target go wrong? Most of the answer, in a word, is spelled G-R-O-C-E-R-Y.

Walmart said its grocery dollar and unit volume grew in the high single digits in the second quarter. Health and beauty products were up in the high double digits. More than half of Walmart’s total sales are generated by grocery, health and beauty. Walmart’s general merchandise sales were down for the quarter, but not as much as expected.

“We see people across income cohorts come to us more frequently looking to save money on everyday needs. That gives us an opportunity to drive conversion in more discretionary categories,” said Walmart CEO Doug McMillon on the retailer’s second-quarter earnings call. “We’re encouraged by how general merchandise performed during the second quarter versus our expectations. We still expect food, consumables, and health and wellness, primarily due to the popularity of some GLP-1 drugs, to grow as a percent of total in the back half.”

Recent research from Numerator puts Walmart’s U.S. grocery market share at 25.2%, up from 23.7% in 2021. Walmart’s market share is larger than the combined total of its next two largest rivals, Kroger
KR
(10.7%) and Costco (9.9%). Target’s grocery share dipped from 3.1% to 3.0% percent during the same timeframe.

Target said that its second-quarter food and beverage sales were up in the low single digits and its beauty comps were up in the low double digits with category gains in both its core business and the Ulta Beauty at Target shop-in-shop concept.

“Given where the consumer is spending, we’re, of course, leaning on the strength of our food and beverage portfolio and essentials and beauty,” said Christina Hennington, Target’s chief growth officer.

Target’s strength in food, beverage and beauty was not enough to lift the chain’s same-store sales at a time when discretionary categories such as apparel struggled to gain traction. Grocery makes up just over 20 percent of Target’s total.

Both Walmart and Target pointed to opportunistic consumers searching for deals as a major trendline in shopping behavior in stores and online.

Walmart said that its Walmart+ Week sales promotion response to Amazon
AMZN
Prime Day in July was a success with the retailer signing up a record number of new subscribers to the program.

Target’s Circle Week promotion alternative to Prime Day with half a million new members to the chain’s loyalty program coming on board.

Walmart and Target’s weeklong programs were expected to jumpstart back-to-school and back-to-college sales for the two chains.

Walmart said it was ahead of plan in July for back-to-school and that it would employ its ongoing strategy featuring essential seasonal products at 2022 prices to stimulate sales as kids head back to their classrooms.

John David Rainey, Walmart’s CFO, said the retailer was offering a basket of 14 classroom essentials for under $13 to drive traffic and sales volume.

Target is approaching back-to-school with urgency as it seeks to improve its top-line performance.

“Our guests are approaching back-to-school with a value-conscious, deal-driven mindset, so we’re leaning into savings for teachers and college students, including our 20% off teachers appreciation and student savings events,” said Hennington. “We’re also featuring ultra-low everyday prices all season long with school supplies starting as low as 25 cents and key items such as lunch boxes and graphic tees at compelling $5 price points. And just in time for back-to-school, we’re launching new Good & Gather products, including an assortment of new lunchbox-sized items.”