Target to slash prices on thousands of items, sending shares tumbling

Key Points
  • Target said it hasn't ditched promotions entirely, but instead will focus on only the most "compelling" sales.
  • Shares of retail rivals Wal-Mart and Costco were also falling after the blog was posted.
  • For companies like Target, lowering prices can in turn hurt gross margins, unless those cuts are made up for elsewhere.
Target shares dip following retailer's promise to slash prices

Target shares dropped after the retailer posted a blog on Friday, promising to lower prices on thousands of goods.

The cuts will be on items including cereal, paper towels, baby formula, razors and bath tissue, Target said. And the news comes just days after Amazon started cutting prices at Whole Foods' stores across America.

Target shares were trading around 3 percent lower Friday afternoon on the announcement.

"We want our guests to feel a sense of satisfaction every time they shop at Target," Mark Tritton, Target's chief merchandising officer, said in a statement.

"Part of that is removing the guesswork to ensure they feel confident they're getting a great, low price every day," Tritton added.

"We've spent months looking at our entire assortment, with a focus on offering the right price every day and simplifying our marketing ... all while maintaining sales we know are meaningful to guests."

Target said it hasn't ditched promotions entirely, but instead will focus on only the most "compelling" sales. The big-box retailer has now eliminated more than two-thirds of its price and offer "call-outs" in stores, so big savings will be easier for shoppers to spot.

Minneapolis-based Target noticeably increased its promotional efforts after suffering a massive data breach in 2013. The heavy marketing at the time was an attempt to lure shoppers back to stores, and since then Target's special deals have waned.

In turn, Target has invested billions of dollars to reinvent its stores and grow its digital platform. During the second quarter, Target reported online sales climbed 32 percent.

Shares of Target's bigger retail rival, , were also trading about 2 percent lower on Friday. 's stock was down near 1.5 percent following Target's blog post.

Target trading lower on blog about lowering prices

For any company, lowering prices threatens eating into gross margins, and this has been a top concern for analysts and investors of many retail stocks today.

Unlike Target, though, Wal-Mart has long been known for its "everyday low price" strategy. To stay competitive with an e-commerce giant promising bargains like , more and more retailers have been forced to follow suit.

The discounts at Whole Foods, which is now owned by Amazon, have so far been on items including organic apples, bananas, avocados, milk and butter — grocery products that require a frequency of purchase. Target looks to be following a similar strategy in slashing prices on essential items like paper towels and baby formula.

"In our view, TGT is following its strategy to invest in price and is taking strides to improve its value perception and increase pricing clarity, which we view as significant opportunities for the retailer to grow trips, basket, and customer loyalty," Cowen & Co. analyst Oliver Chen wrote in a note to clients.

With Friday's declines, Target's stock has fallen a little more than 22 percent in 2017.

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