Retail Giants Navigate Into New AI-driven Era

Walmart Inc. and Target Corp. are natural competitors in the dog-eat-dog world of retail. 

They’re both big-box retailers selling value to shoppers. They’ve both been building with e-commerce, third-party digital marketplaces and delivery. And they’re both supersized fixtures in American shopping centers.  

But while Walmart is ginormous at $681 billion in sales, Target is just really, really big at $107 billion. 

Now, they’re entering a new, AI-driven age of retail with new chief executive officers on the way and very different trajectories. Walmart is winning and Target is looking to get its stride back after some costly stumbles. 

Eleven years ago, when Doug McMillon became CEO of Walmart and Brian Cornell took the reins at Target, it was a much different dynamic. 

The brick-and-mortar giants were both on their back foot, trying to figure out how Amazon took the online retail opportunity out of their hands. 

Now, Walmart is really the industry’s only counterpoint to Amazon and Target has stagnated over the last couple years, falling back toward the rest of the retail pack. 

That divergence traces the tenure of the retailer’s outgoing CEOs and offers a case study on the patience, foresight, awareness and quick reflexes needed to reinvent mega-billion-dollar operations on the fly in a rapidly changing world. 

It’s a study with lessons for the fashion industry at large as it races into an even more tech-inflected future. 

The Walmart Win

While there are countless factors that pushed Walmart over a half-trillion dollars in sales, the most important is its ability to deliver a better roast beef sandwich. 

And milk and eggs and everything else shoppers need for their pantries. 

“Walmart has a very powerful core, meaning leadership and grocery,” said Oliver Chen, a stock analyst at TD Cowen, who counts the retailer as his top pick. “That business, it’s very hard to do well, but it has a degree of predictability. Target’s portfolio is much more discretionary and therefore it’s in a tougher place.” 

Last year, 60 percent, or $275 billion, of Walmart U.S.’s merchandise sales came from the grocery business. 

That’s a business that keeps shoppers coming back week after week, giving the company scale and the opportunity to repeatedly try to draw shoppers to its other offerings. 

And Walmart finally moved to really grab that opportunity in fashion, hiring Saks Fifth Avenue veteran Denise Incandela who was hired in 2017 to lead its U.S. apparel business, giving stores a new look with mannequins and sharpening its gigantic private label offerings. 

Last year, for instance, the company reset its $2 billion, 30-year-old No Boundaries, going toe-to-toe with Abercrombie and other teen retailers with a much more cohesive brand presentation and positioning. 

And crucially, while Walmart worked to become a better retailer, it also worked to grow beyond its traditional four walls. 

Chen said Walmart under McMillon moved quickly to remake its business, using AI to boost inventory accuracy, embracing the online marketplace model, a membership model and the digital advertising opportunity.

“Those were decisions made five to 10 years ago,” Chen said. “They’re seeing the fruits of their labor, and those had to be tough decisions because they were loss making.”

If there was a single turning point for Walmart, it might have been the 2016 deal to buy Jet.com for $3.3 billion. While the Jet business itself was shuttered in 2020, the deal brought along founder Marc Lore and a new mindset to Walmart. 

The company was more ready than ever to make big bets, buying a host of direct-to-consumer brands, including Bonobos, and then pivoting and selling the businesses when the initiative didn’t pay off. 

“Marc Lore was transformational for amplifying the supply chain changes,” Chen said. “And Walmart really took a page off of Amazon, expediently building the marketplace.”

Now, that it’s positioned has been solidified, Walmart’s increasing looking the other way and borrowing from Target’s playbook by building better brands and bringing in fresh names across fashion and beauty.  

“So many of the brands that we applaud Target for having, because they were new and modern and just coveted in the mass sector — Walmart now has them or they have a version of them,” said Jessica Ramírez, cofounder and managing director of advisory firm The Consumer Collective. “It looks great.”

And as Walmart built this new retail machine, borrowing the marketplace from Amazon and some brand savvy from Target, the pieces have started to click into place. 

“They’ve become very clever of creating this ecosystem between their marketplace, between their stores, and at the same time on the backend, what they’re doing with their media arm is fantastic because they can actually do a lot of data analysis, which they’re very good at in order to sell back or have these good partnerships with other brands,” Ramírez said. 

“They’ve gone into resale,” she said. “They have the partnership with StockX, they have the partnership with Stadium Goods, they have the partnership with Rebag. There’s quite a lot of partnerships that they’ve developed on the marketplace.”

Combining the massive grocery business, the emphasis on the better brands, the marketplace with sharper fashion, has Walmart — at least right now — drawing a little bit of everyone. 

“They have all cohorts now,” Ramírez said. “They have high income, middle income and low income. If you’re walking through those doors and you can get your T-shirts that you used to get at Target, you can get some of the beauty items there. You have services, you have grocery, it doesn’t make sense for you to go to two stores.”

Target’s Misses

At the start of Brian Cornell’s tenure, Target was also facing the seemingly existential threat of Amazon and its online dominance. 

And like Walmart, the bull’s eye retailer made its own play for the future of e-commerce, but focusing on same-day delivery with the $550 million deal to buy Shipt in 2017. The company also flexed its private label muscle, ramping up the Cat & Jack kids’ line into $2 billion in two years and getting the All in Motion active brand to $1 billion in a year.

But the company does not have the cushion of Walmart’s big grocery business. 

As TD Cowen’s Chen said: “It’s been tough for Target to demonstrate consistency in the face of a mixed consumer — Target’s been more vulnerable to just the way the world goes and Walmart’s been able to outperform. Target’s been a work in progress. The biggest problems are the home category and the need for supply chain speed [and] retail basics like inventory, execution and in stocks.”

And Target’s been slow to really fix some of those retail basics. 

“There’s some core operational metrics that have remained in a bad place for more than five years,” said Katherine Black, a partner at Kearney, where she leads the Food, Drug and Mass Market retail business. “Things like out-of-stock issues that are chronic, five- to 10-year kind of problems.

“The core of a business for a retailer is to have product on the shelf and have it at a reasonable price and it be product consumers want to buy,” she said. “That’s the main mission.”

While all retailers have their ups and downs, Black and others have left responsibility for these ongoing retail shortfalls on Cornell’s desk. 

“And when one of those elements is off for not quarters but years, then that’s a chronic problem and I think [Cornell] failed to address that sufficiently,” Black said. 

Ramírez, at The Consumer Collective, said Target started to get too comfortable. 

“They were running on all cylinders,” she said. “They stopped evolving, they stopped future-proofing. You have to evolve your business.”

She pointed to the company’s mobile app, which has been slow to add some features available from other retailers. “That app has always been great and it’s very easy, but again, you have to keep evolving that,” she said. 

Target also ran afoul of both sides of the culture war, first with its Pride Month merchandise offering and then with its move away from DEI after Donald Trump was elected president.

“They did not remove the product coming from Black founders or Latin founders or Asian founders, that is still there, but I think the way it was handled in the press was not good,” Ramírez said. “Target was already in hot water and it got itself into boiling water.” 

The Future

Now both companies are passing the baton, Walmart to John Furner and Target to Michael Fiddelke — insiders who have been at the company for years, helping shaping the businesses over the past decade. 

Like McMillon and Cornell came in facing down the threat of Amazon, Furner and Fiddelke have their own existential challenge. 

“AI is going to be a new chapter for both,” said Black at Kearney. “They need to integrate AI across the organization and then lean into understanding customer context, meaning all the things you purchased together to help you get things you didn’t know you needed or wanted quickly.”

And that is another way of saying that Walmart and Target have to continue to be good retailers, but to keep up with the changing definition of retail.

Target remains in fix-it mode and Walmart is coming into the next age with momentum and the benefits of its gigantic grocery business, and its maturing marketplace and its ad businesses. 

Walmart also seems to have an edge with shoppers.

The Consumer Collective surveyed 1,000 U.S. adults in households that earn under $75,000 headed into the holiday season. 

It showed that 72 percent of shoppers planned to go to Walmart for gifts while 36 percent planned to go to Target. 

The problem for both of them? Seventy-three percent of shoppers plan are bound for Amazon.

The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000. It appears periodically.