Behind the lowering of performance outlook by the American retail giant Target Corporation (TGT.US): tariff impacts, soft consumer demand, and diversification controversies.

After experiencing a weak performance in a quarter, the retail giant Target Corporation (TGT.US) has lowered its sales forecast this big box retailer's attempt to regain growth has once again hit a snag. The retail giant now expects a low single-digit decline in net sales for the year, lower than the previous guidance of "approximately 1% growth," primarily due to significant reductions in consumer spending, resistance to tariffs and diversification-related consumption, and a hit to consumer confidence. Target Corporations downward adjustment in performance guidance has even raised doubts among investors about whether CEO Brian Cornell has the ability to execute a plan to restore growth after two years of fluctuating performance especially as economic turmoil intensifies. In the quarter ending on May 3, Target Corporation's comparable sales fell by 3.8%, exceeding analyst expectations. The company attributed this mainly to a slowdown in store traffic, as well as significant reductions in consumer spending per visit under sustained inflation pressure and expanding inflation expectations. "I want to be clear, we are not satisfied with these performance results," Target Corporation CEO Brian Cornell stated during a performance conference call with analysts. He added that Target Corporation is urgently taking actions to stimulate growth. "We must bring customers back to our stores and websites to rebuild growth momentum." CEO Cornell attributed the decline in performance to increasingly weak consumer discretionary spending, decreasing consumer confidence, uncertainty brought on by tariff policies, and resistance from some shoppers following the cessation of the company's "gender and diversity initiatives." He noted that the growth of the e-commerce business was a bright spot. Based in Minneapolis, Target Corporation has struggled to recover robust performance growth for about two years after years of high inflation, consumers have reduced spending on non-essential items like clothing and home goods. Demand for discretionary goods has yet to rebound. Although these unfavorable trends have broadly impacted the U.S. retail industry, Target Corporation is more vulnerable than some retail peers like Walmart Inc. (WMT.US). The main reason is that apparel, home goods, and non-essential items account for about 65% of its sales, while competitors like Walmart Inc. rely more on essential items like food and household goods. In recent years, Target Corporation has also faced inventory management challenges due to demand fluctuations. Target Corporation continues to lag behind Walmart Inc., which has been investing in low-price strategies, optimizing product categories, and renovating stores. Additionally, Walmart Inc. has gained market share among affluent consumers, a segment that used to be a strength for Target Corporation. Jefferies Financial Group Inc. analyst Corey Tarlo stated, "Considering the tariffs and Walmart Inc.'s substantial market share gains, we believe Target Corporation's operations will be even more challenging in this environment." As pressure to improve performance increases, Target Corporation has announced a series of management changes and stated that its Chief Strategy and Growth Officer Christina Hennington will be leaving the company. She has been with Target Corporation for over 20 years and was considered a potential successor to Cornell. Her replacement is COO Michael Fiddelke, who will lead the newly established "Multi-Year Performance Acceleration Office," aimed at helping Target Corporation "quicken the realization of its performance growth blueprint." Target Corp's stock price fell over 3% in pre-market trading in New York. So far this year, the stock has fallen by 27%, while the broad market benchmark S&P 500 Index has risen by 1% after a big rebound in April. In the U.S. stock market, most retail stocks have significantly underperformed the S&P 500 Index since April, and there has been a rare "stock-bond-dollar triple kill" in the market of American Financial Group, Inc. The main logic behind this is the lack of confidence in holding U.S. dollar assets due to the enormous economic growth uncertainty caused by Trump's tariff policies, as well as the threat to the Federal Reserve's independence from the Trump administration's desire to remove Powell, coupled with most investors betting on a resurgence of inflation trends brought on by Trump's aggressive tariff policy, which may lead to further reductions in spending by American consumers who have been struggling due to high inflation in recent years. Data from the University of Michigan Consumer Survey shows that U.S. consumer confidence unexpectedly dropped to 50.8 in May, not only below April's 52.2 but also hitting the second lowest level in history, only slightly higher than the lowest record set in June 2022. In terms of inflation expectations, consumers expect prices to rise by 7.3% at an annual rate in the next year, the highest level since 1981; and the average annual inflation expectations for the next 5 to 10 years have also risen to 4.6%, a new high since 1991. Looking at the various sub-indexes of the University of Michigan Consumer Survey, the index of expectations for the future has dropped by nearly 1 point to 46.5, the lowest in nearly 45 years; while the index of current economic conditions has fallen by 2.2 points to 57.6. Furthermore, consumers' assessments of their own financial situation have significantly declined to a new low since 2009, while their expectations for their future financial situation have dropped to an all-time low. Diversity Resistance After scaling back "diversity initiatives" earlier this year, some consumers who lean towards a diverse cultural narrativeShoppers are boycotting Target Corporation. Despite many companies scaling back their diversity initiatives under pressure from the Trump administration, the boycott against Target Corporation is particularly severe.This is related to the brand's longstanding commitment to diversity as the core identity of the company: from partnering with black-owned businesses, to offering a wider range of clothing sizes and supporting gender-neutral clothing. Tariffs have become the latest obstacle to revenue growth Higher import tariffs are expected to raise prices of core products in the near term, leading to a sharp decline in consumer sentiment and a more cautious approach to shopping. Target Corporation executives have expressed a conservative outlook on current sales prospects, but have indicated that challenges related to tariffs will continue in the coming months. Executives in general stated that the retail company is adjusting prices to adapt to the volatile environment, but have not directly attributed the changes to tariffs - a departure from earlier statements in March that discussed the direct impact of tariffs. U.S. home decor retailer Home Depot, Inc. took a more cautious stance on the impact of tariffs on Tuesday, while Walmart Inc. last week announced plans to raise prices of products. President Trump expressed extreme dissatisfaction with the idea of retailers raising prices over the weekend. Target Corporation executives stated that they are actively negotiating with suppliers, reviewing product offerings, and changing the purchasing country of some goods. Returning to revenue growth plans Despite overall weak performance, Target Corporation Chief Merchant Rick Gomez stated that as long as new products are fashionable and reasonably priced, consumers are willing to make purchases. The company's collaboration with Kate Spade is the most successful designer partnership in years, with holiday sales such as Valentine's Day and Easter outperforming non-holiday sales. Gomez stated that in the last quarter, Target Corporation lost market share in 20 out of 35 core product categories in the U.S. Essential items, fresh produce, flowers, and women's swimwear categories, however, maintained or increased market share. Target Corporation executives stated that this year, the company will focus on increasing market share in core product categories in more U.S. markets, launching new products, and providing attractive value for key products. The company has increased promotions on its product offerings and plans to launch over 10,000 new fashionable items this summer, with some priced as low as $1. Cornell stated in the earnings conference call: "Even in a tight consumer budget environment, they may not cut back on discretionary spending during extremely important holidays like Valentine's Day or Easter. But we recognize that we must ensure provide suitable products, a suitable product mix and suitable value every day to attract customers to our stores and online sales platforms."