Why is Target losing to Walmart, and will it ever catch up?

Target Corp. (NYSE: TGT) is likely to face significant challenges in regaining the market share it has lost in recent quarters, according to retail industry veteran Jan Kniffen.

Despite lowering prices and launching an early holiday sale last month to drive traffic, the big-box retailer still fell well short of analysts’ expectations for its fiscal third-quarter results.

Target’s stock plummeted more than 20%, hitting a year-to-date low of $121 this morning, largely due to the company lowering its full-year guidance, which dampened hopes for a quick recovery.

Why is the US consumer choosing Walmart over Target?

Target was once known for its exceptional in-store experience.

But Walmart Inc (NYSE: WMT) has invested rather aggressively to play catch up in recent years. In fact, it now “looks just as good” as a Target store, Jan Kniffen told CNBC on Wednesday.   

Plus, the stuff is “cheaper and the selection is better”. That’s why WMT is finding success in stealing the $100,000+ household customer from Target, he added.

Walmart attributed much of the strength in its recently reported quarter to that segment.

A more than 5.0% year-on-year increase in Walmart’s comparable-store sales suggests “somebody gave up a lot of market share – and it looks to me like part of that is coming out of Target,” as per Jan Kniffen.

Smaller footprint in grocery is a disadvantage for Target

Walmart has a huge advantage over Target as it drives 60% of its business from grocery.

That’s what Americans are prioritizing in terms of spending right now.

A full grocery shopping experience also means “you go [to a Walmart] every week”.

That’s a “real disadvantage” for Target since it makes a customer that much more likely to get the other stuff from Walmart as well instead of driving again to a nearby Target, Kniffen argued on “Squawk Box” today.

Additionally, WMT has made significant investments in technology to drive customers to their stores.

Kniffen dubbed Walmart the best retailer in the world as it’s “adopting AI faster than any other retailer and that’s making their distribution system more efficient” as well.

Should you buy the dip in Target stock?

While Target stock is a bit more attractive following today’s sell-off, “they’re still having a very tough time,” according to Jan Kniffen.

On the other hand, Walmart is recording solid results quarter after quarter and is growing “twice as fast” in e-commerce as Target.

Plus, it has advertising to supercharge its gross margin and overall growth rate in 2025.

All in all, the industry mogul dubbed WMT a tough competitor to beat as it has “the most money, the lowest cost of capital, and is doing everything that Amazon does.”

The retailer’s ambition to “be just like Amazon” only with 5,000 stores as well may just be reason enough to pick it over TGT, Kniffen concluded.  

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