Walmart and Target Just Place Long-Term Customer Loyalty Over Short-Term Profits

by Dustin Siggins

When investors say jump, many companies ask, how high? But Krista Walls, a mother of two who shops for family, friends and charities at Target and Walmart, is grateful for retailers’ decisions to keep prices low despite pressure from investors to raise them.

“I buy most of my Christmas gifts from Target and Walmart, and as my kids get older, those gifts get more expensive!” Walls told Zenger News. “I was actually a little worried, between gas prices and rising grocery prices, about Christmas presents. Now I couldn’t be happier.

Indeed, Christmas arrived early this year for millions of shoppers like Walls, when the two major retailers unveiled their plans one day apart in mid-November to stay the course on prices over the next. holiday season.

In their latest earnings calls with investors and analysts, the two flagship companies said they would not raise prices to offset higher supply chain costs and pre-inventory purchases.

Walmart even went so far as to tell investors that its competitive “price gap” was larger than normal, but that it would not take the opportunity to raise prices more than necessary.

Immediately after the announcements, many large investors were unhappy, with an overnight stock sale that an analyst told S&P Global that Walmart and Target were each costing 3.1% of the value of their shares.

But Walmart and Target have held their own because of the value of public relations and the market share of prioritizing long-term customer loyalty over short-term profits.

What Walmart and Target Said

Throughout a call to investors on Nov. 16, Walmart executives made it clear that they wanted to retain Walmart’s traditional price advantage over the competition.

When Citigroup Global Markets analyst Paul Lejuez asked about “cost inflation” for Walmart and its competitors, as well as what the company and its competitors will “do in terms of passing it on to the consumer Walmart US President and CEO John Furner drew a line in the sand.

“We want to keep prices low for customers across the business, and we’ll be the last to increase. We are therefore satisfied with our price positioning. We are seeing spreads that are wider now than they were before the start of the pandemic, and we intend to maintain that position. “

The next day, Target Executive Vice President and Chief Growth Officer Christina Hennington drew a similar line. She said Target had “recently announced the launch of our Holiday Price Match Guarantee, our most robust price match yet.” Most of the questions from investors after Hennington’s comments centered on Target’s costly pre-purchase of inventory and other supply chain challenges that left below-normal margins.

Target CEO and Chairman of the Board, Brian Cornell, and CFO Michael Fiddelke have not lost their words.

Cornell: [Y]e have heard us say several times today that we are investing in growth. We are investing to maintain and continue to develop market share and build on the extraordinary results we achieved last year, where we added $ 9 billion in market share and continue to see this momentum increase in 2021. “

Fiddelke: “But I will say that over time we expect to be a growing business. We expect to be a company that increases its revenue and gains market share over time.

It was after these calls that investors pushed their prices down. However, Zenger looked at both companies’ share prices ahead of the opening bell on November 30 – both companies had rebounded from temporary lows and were higher than pre-Christmas buy stock prices. Obviously, investors were not this fear that two of the world’s largest retailers have taken a loyalty-driven approach for years to increase their market share and revenue.

The right message at the right time

Inflation is 6.2%, gas prices are at their highest nominal price since 2012 and food prices are 5% higher than they were last year. Walls and two corporate branding experts told Zenger that Walmart and Target’s positions could not have been better for affected consumers, especially since they contrast sharply with the expectations of other companies. and investors.

“My family just moved and we traveled for Thanksgiving, so our short-term costs are really high,” Walls said. “We normally spend hundreds of dollars just on Christmas presents, along with household items and everyday groceries, so it’s a legitimate relief that we can’t squeeze neighborhoods so hard. “

“Many consumers don’t feel their government is listening to them or understanding their needs or their challenges with rising prices,” said Christian Pinkston, Founder and Managing Partner of Pinkston, a public relations firm. . “Therefore, brands – including our customers at Pinkston – are stepping up and making decisions to show that they hear the American people and understand their plight.”

Touchdown Strategies founder James Davis agreed.

“Most Americans wouldn’t blame companies for the price increase when supply chain challenges and inflation drastically increased the cost of doing business,” Davis said. “Instead, Target and Walmart decided to forgo short-term profit increases in favor of long-term market share by focusing on their customers.

Customer loyalty creates investor appreciation

Despite economic hardships over the past 18 months, Walmart and Target are doing well, exceeding investor expectations in Q3 2021. They are also hiring large numbers of temporary staff for the holidays: In September, Target announced around 100,000 hirings, and Walmart has expected 150,000 of those employees.

These results delighted investors during the calls on November 16 and 17, before the announcement of the price decisions. Business consultant Susan Trivers, who buys from Target, said the companies made the right choice for customers, growth and investors.

“Target and Walmart are known for their low prices. By keeping Christmas 2021 consistent with this long-term brand positioning, they prevent customers from considering other retailers, ”she said. “This will increase their loyalty, which will increase their market share, which will increase their value to investors.”

The walls were okay.

“I might not be a big spender, but millions of people like me are the reason Target and Walmart are successful. Price is a big part of the relationship.

Joseph P. Harris