Sometimes I feel like a broken record.
As the toy industry and its retail partners enter the midway point of the fourth quarter and head toward the holiday sprint, certain terms like “duality” and “mixed messages” come to mind year after year.
On the one hand, current estimates from organizations like the National Retail Federation (NRF) and Adobe Analytics project holiday spending to be at an all-time high. Conversely, post-election consumer confidence still sends mixed messages about what to expect this quarter. With the days of the single, must-have holiday toy behind us, the season calls for all-out excitement—as many like to say, “a rising tide lifts all boats.”
For a look at the duality of mixed messages, one need look no further than Walmart and Target’s third-quarter earnings reports this week.
A tale of two titans
Walmart’s revenue grew 5.5% to $169.6 billion, and sales surged 5.3%. Walmart President and Chief Executive Doug McMillon praised his colleagues in earnings materials and on social media, while the company raised guidance for the current year (fiscal 2025).
We had a strong quarter, continuing our momentum. Our people are working hard to save people time and money and transform our business. Across markets, we continue to grow, with our new business helping profits grow faster than sales while we work to lower prices.
— President and CEO of Walmart
“Toys” was mentioned six times on Walmart’s earnings call, with executives citing strong demand and good performance as the company reported a second straight quarter of soaring sales in discretionary items.
On the other hand, Target CEO Brian Cornell attributed part of the reason that comparable store sales fell 1.9% from last year’s third quarter and total revenue edged up 1.1% to $25.7 billion due to “continued decline in the discretionary category.” Weak”. Shockingly, Target lowered its guidance for this year just three months after raising it.
However, “toys” were also mentioned six times during Target’s earnings call, with Executive Vice President and Chief Commercial Officer Rick Gomez saying that Spin Master’s Ms. Rachel line is as popular as this fall’s slew of movie-related products.
“We know consumers don’t want to choose between value and novelty. They want both,” Gomez said. “At Target, they don’t have to choose. Our holiday merchandise assortment is the largest ever, with 50% more new merchandise than last year. This includes orders from the biggest brands like Disney, LEGO and FAO Schwarz. Exciting new toys, and our ‘Only at Target’ brand GiggleScape.
Product confusion
There’s a lot to be said about the overall consumer experience; it’s an area where things have shifted over the past few years.
In 2018, America’s first holiday season without Toys “R” Us, retailers of all sizes are chasing the toy market. They quickly discover that toys are a serious business and most of them scale back by the second year.
At the time, I publicly stated that Target won this round in the Toy Wars, but that doesn’t mean they are winning now. Initial investments in the toy department improved displays, increased floor space and expanded assortment. But, as I always say, you can’t pile toys and games on a shelf and expect them to sell themselves – and you can’t sell an empty hook either!
Target has performed poorly over the past two years in most stores I’ve inspected. Cluttered shelves, merchandise in the aisles, and a lack of knowledgeable staff in the toy department all dampened the experience. Even the much-publicized partnerships with FAO Schwarz and Disney Stores have lost their appeal.
The collectibles section, usually tucked away on the back wall near the electronics, has become so cluttered that it’s not available for purchase in many stores. While the area’s inventory turns are expected to be much lower than the toy department itself, the area is packed with products from Funko, NECA, Super7, McFarlane Toys, Bandai, and more, while also often becoming a dumping ground for groceries they either don’t have a home for, or Got lost on the way to another walkway. On a good day, shoppers won’t find aisles clogged with incoming goods tossed into shopping carts or rolling racks on the sales floor. I would be embarrassed if I were a store manager or merchant in this area.
At the same time, the Walmart experience has also been greatly improved.
I couldn’t miss this transformation last week when I visited the Walmart Supercenter, which I usually define as a “rough” location.
Friendly colleagues in every department at 7pm. They stock the shelves, “partition” (pull items forward on the shelves/pegs and put all the clutter away), and assist shoppers. The stocking level in the toy department is probably the best I’ve seen in the last three years. Additionally, almost every checkout counter at the front of the store is manned by a real person.
To win in retail, you have to execute at the store level. This will be key over the next six weeks.
Bullseye warning
In May, I was reminded of my experience working at Kmart when Target announced plans to lower prices on more than 5,000 items, a move that doubled from the previous month, with news that it would drop prices for the holiday season. before reducing prices on another 2,000 items. Target said it will lower prices on more than 10,000 items by the end of the year.
You can’t compete with Walmart on price.
Target, like Kmart back in the day, has an identity that sets it apart enough that the U.S. can support rival national retailers and many regional competitors. In 2002, it was reported that Kmart had lost more than $2 billion last year, and Forbes said the company had “lost much of its image.”
Kmart could have survived by focusing on what it did well and the problems it could solve (a post for another day), but instead it added an ill-advised and completely unwinnable price war to its list of missteps .
You know what they say about history repeating itself?
The redshirt has some work to do if Target wants to get back to his best.
A clean, well-stocked, well-staffed store with above-average, slightly higher-quality fashion items makes all the difference. There is no doubt that Target has passionate, good people in its toy business, but that will mean nothing if the entire business continues to fall out of favor with American consumers and the next Eddie Lambert starts to emerge .
