Target's plan to lock in shoppers is working brilliantly

• Target managed to return to sales growth in the second quarter, ending a yearlong slide.
• The retailer said it offers strong value for customers who are more careful about their spending.

Target just pulled off a much-needed win.

Faced with a year of declining comparable sales, the retailer notched its first quarterly growth of 2% in spite of an increasingly challenging consumer economy.

"American families continue to deal with a lot. These pressures are clearly weighing on them, and they're looking for a refuge from the everyday stress that they're feeling," Target's chief commercial officer, Rick Gomez, said Wednesday during the company's earnings call.

"Yes, they're budget conscious, and yes, they're hunting for deals and everyday value, but they're also willing to shop when they find that right combination of fashion and newness at the right price," he added.

Shoppers are clearly finding refuge (and excitement) at Target, ramping up their number of transactions by 3% thanks in large part to aggressive promotions, personalized deals, and the convenience of drive-up.

CEO Brian Cornell said shoppers have made nearly a billion trips to Target this year so far, up 20% since 2019.

Cornell attributed these increased visits to the "special bond" Target has forged with shoppers looking for the brand's trademark combination of style, convenience, and bargain prices.

"Target's results will also come as a general relief for the retail economy and is another proof point that while consumers remain constrained and cautious they are not in recession mode," GlobalData retail analyst Neil Saunders said in a note. "As a retailer that is more skewed towards discretionary purchases, Target is a more important signaler than Walmart in this regard."

Beyond cutting prices, last quarter's results also benefitted from Target's decision to expand and simplify its free-to-join loyalty program, which added 2 million members in the period.

Through the Circle program, the company is better able to target deals to individual shoppers, and Gomez said Target offered four times as many personalized offers as it did a year ago.

In addition, Cornell said two thirds of transactions during Target Circle Week in July were from loyalty members.

David Silverman, senior director at Fitch Ratings, said in an analyst note that his agency expects this loyalty push could help Target gain market share in the coming years.

Even with the uncertainty in the broader marketplace, this strategy is clearly working well for Target, and Cornell said the company intends to double-down in the coming months.

"We're going to continue to play offense, we're going to look to drive traffic into our stores and business to our site, and make sure we deliver great value along with newness for our guests throughout the season," the Target CEO said.

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