Use Industry Intuition to Predict Results Ft. Target 

Personal business knowledge is an edge when investing, if you’re aware of it. What advantage can you incorporate to give yourself that edge? How do you open your eyes to incorporate more than economic reports and quantitative data? How can you enhance an investment decision with additional information you are currently ignoring? 

This article covers how social factors, generational insights, habits, and personal industry experience can give you the edge on how you perceive a company.  

Let’s Talk About Target 

Financial analysts might question a biased Gen-Z woman’s ability to evaluate a company’s outcome because of her lack of industry experience, on top of her thinking that paying $4.50 for coffee is a steal. But I say differently; if there’s one company I know personally, from countless hours of “shopping,” getting everything I don’t need, and reading about highly effective algorithms/marketing, it’s Target. 

What is Target? Target is a retail corporation that markets predominately towards women by creating a utopian space of possibility. 

Who shops at Target? The target audience is suburban mothers between 35-44 years old. 

How is Target so effective? Partly because of precisely placed impulse purchases, partly pristine marketing, and partly predictive algorithm scores

To summarize, Target created the ultimate atmosphere for moms to splurge, college students to buy everything they need, broke individuals to walk around in potential decor, partners to stress over finances, and everything to co-exist happily. 

So how did Target go from having the best years in 2020-2021 to just releasing a report of plummeting sales in the last quarter? Consumer behavior is at an all-time high, but they are not going to Target to buy home decor like they were before. Let’s look over the data and then the observable, obvious factors. 

What Does the Data Say? 

Data doesn’t lie, so what’s been going on with Target for the past few years from a quantitative perspective? By analyzing its financial state, there could be potential predictions for the future. 

Using Equities Lab, we made a ticker for Target (TGT) and backtested it over 10 years. The line graph below was reported. Visually, Target starts spiking upwards in 2019 through 2021, outperforming the S&P 500, with a dip starting in 2022 and then a continued downward progression in 2023. 

Target data

The time graph below depicts Target shooting up in 2019, beating it in 2020, matching in 2021, and declining significantly in 2022. Demonstrating that the dip began in 2022 and worsened in 2023.

Target declining

The most noticeable issue is the decline of the mega retail store within the past year, so after up setting up a 2nd backtest that covers over a year, it shows a sharp decline in performance.

Target performs poorly in the last year

Looking for Red Flags 

The initial decline began in 2022, but let’s look into the recent dip in 2023 to see if there are any identifiable red flags. It’s time to pull out the reputable reports.

If you want to know how to find the same data through Equities Lab, go to the maps tab, click on Target (or any stock you’re researching), then select the SEC link to go to the Securities and Exchange Commission. 

Once there, click on “interactive data” aligning with August 16th. Next click “see all company filings” in red, and finally, “August 16, 2023 – 8-K: Current Report” (or click on the link attached to this document).    

What was reported to the SEC? Target’s EPS went from $0.39 in 2022 to $1.80 in 2023, an increase of 357.6%. That’s good! In the 2nd quarter, sales declined by 5.4%, while inventory was 17% lower because Target reduced discretionary categories by 25%. 

One bad quarter doesn’t predict the future, so let’s see what factors could’ve caused such a dip. 

What factors impacted Target? 

It’s been a rather crazy few years, so why the dip in 2023? It feels sudden for the company’s success. Below is a timeline of the events surrounding the past few years that could have had an impact:

Timeline: 

  • 2020-2021: The Pandemic increased sales for Target online, making it its best year.
  • 2022: Target began declining post-pandemic.
  • Early May 2023: Target releases a pride collection.
  • Mid-May 2023: Target receives backlash for the pride collection. 
  • Later May 2023: Target removes the pride collection. 
  • June 2023: Target receives backlash for removing pride collection. 
  • July-August 2023: Target continues to dip.

Target has cited that it’s not doing so hot because of the backlash from Conservative and Liberal individuals over the pride collection. Although that would put a dent in business, another reason cited is inflation, which is true. Let’s think outside of Target’s perspective, though. It is a business, and they want to portray a positive persona.

How to Use Intuition

Have you been to Target recently? Consumers have, but with a new mindset. The first thing inside every Target store when you first walk in is a section with cheap, aesthetically pleasing, easy grab, not totally useless, but also not useful items. In other words, they fall into the discretionary category of non-necessary items, which historically comprised 50% of Target’s sales. Remember, according to the SEC report, they decreased their discretionary category by 25%.

Why would Target decrease that? Because it isn’t selling. Consumers don’t feel the need to buy a floral printed oven mitt with a matching mug that matches everyone else, as seen in the decline in 2022. This forced the corporation to start shifting away from discretionary goods, the historically most significant money maker for them.

Consumers adopted the mindset of going in, getting what they need, and getting out, which counters the marketing model that capitalizes on pushing ideas into customers’ heads. But it’s a new landscape; even if consumers want to spend money, it isn’t at Target. It’s at another store with stronger deals, better quality, and cheaper prices. 

While that unfolds, what could happen in the future? There are upcoming factors that could continue to impact the performance of Target. 

Future factors to consider: 

  • Continued Inflation
  • Cheaper Competitors 
  • Consumer Behavior 
  • Potential Rebrand
  • Student Loan Payments Resume 

Takeaways

How does personal intuition play a role in this story? I used to love shopping at Target, but now I prefer more convenient and cheaper options. The groceries are not diverse enough, the clothes are too expensive for the quality. If you want decorations that match everyone’s and their mothers, you go to Target.

The swirling narrative is that the corporate giant isn’t doing well because it made “controversial products” or it took those products off the shelf. The criticism is unclear. Could the backlash from the Pride collection play a role in Target’s decline? Absolutely! Target has been dipping since 2022, though, almost a year before the Pride collection came out. The monotonous products at inflated prices with the retail market shifting has consumers (aka me) tired of shopping at retail giants. Target was going down in 2022, and then it kept going down in 2023. Millennials, Target’s biggest audience, resumed paying student loans. We are starting to see the impact on the already declining sales.

How does this apply to you? Take personal industry experience, insights about companies, and the vibes from your peers and yourself, to enhance your understanding of a company’s performance. You can tell that backlash might’ve impacted Target, but did you personally stop going there beforehand, knowing better options existed? Time to apply your experience with quantitative data to see the trends so you aren’t misinformed.