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Walmart Stock Wins as Target Tumbles. What It Says About the Consumer and the Market.

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Walmart stock has risen more than 15% so far in 2023.

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While it might be easy to lump big retailers together, it never pays to paint any industry with a broad brush. That much is obvious when it comes to Walmart and Target’s big divergence in 2023.

Shares of Walmart (ticker: WMT) reached an all-time high this month as the world’s largest retailer reaps the rewards of its investments in everything from grocery to technology. The stock has jumped more than 15% since the start of the year, dwarfing the SPDR S&P Retail ETF’s (XRT) sub-2% year-to-date return and the Consumer Staples Select Sector SPDR Fund ‘s (XLP) 4% decline.

Yet the contrast is even more striking when compared to its closest rival, Target (TGT). That stock is off 20% so far in 2023, and is hovering near its 52-week low. On Monday, Target shares sold off again—it has declined more than 6% this month—despite a lack of any specific catalysts.

As 叠补谤谤辞苍’蝉 has noted, there’s no shortage of worries that could be weighing on Target, from increasing theft to politics. But the heart of the problem likely boils down to what consumers need and want to buy.

While inflation is cooling, prices still remain strikingly high compared with just a few years ago: That means more consumers have to make tougher choices when essentials eat up an ever-greater portion of their budget.

“Even with the Target-specific issues, this speaks to consumers shifting to the lowest-cost option,” The Bear Traps Report’s Larry McDonald wrote on Tuesday.

Some have no money left over after paying for nonnegotiables like food and shelter—U.S. credit card balances crossed the $1 trillion mark this summer as more Americans used debt to keep the lights on. Shoppers with some discretionary money likely find that those funds have shrunk, and they are still typically choosing to spend their fun money on services and experiences—rather than the goods they stocked up on during the pandemic.

That has left Target in a tight spot. The retailer gets more of its business from things that are nice to have—but not necessary—like clothes and home décor.

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However, Target seemed to stumble even in its core categories during school season shopping. According to data from Numerator, Walmart expanded its market share by 1.8 percentage points in terms of back-to-college shopping, while Target’s share declined 3.2 percentage points.

Walmart also gets more than half of its business from essentials like food. And its reputation for low prices means that it is gaining customers who are feeling strapped—even six-figure earners.

Jefferies analyst Corey Tarlowe simply puts it simply: in the current environment, “value wins.”

Data prove that point. Looking at the past 18 quarters, Tarlowe?found that value and mass retailers have clearly outperformed peers. Walmart’s U.S. operations (its flagship supercenters and warehouse division Sam’s club) and Costco Wholesale (COST) are the only retailers that have delivered comparable sales growth every quarter during that time frame.

Tarlowe expects that trend will continue, particularly given shopper’s bargain-hunting mentality and the increase in sales for cheaper, private-label products.

Investors appear to agree, as Walmart’s stock has been rising steadily throughout the year, while Target’s shares have been on a steady slope downward.

We’ve heard plenty about the ‘magnificent seven’ big tech stocks that have nearly single-handedly propelled 2023’s stock market rally. When it comes to picking retail stocks, investors seem similarly happy to bet on just a handful of winners. ?

Write to Teresa Rivas at [email protected]