Target and TJX Take Diverging Paths Through Tariff Turbulence—Speed vs. Flexibility

Yahoo

22-05-2025

Although Target's 2025 outlook to a hit due to uncertainty surrounding tariffs and consumer spending, the mass merchant is keeping its foot on the gas when it comes to delivery.
The retail giant's average click-to-deliver speed was nearly 20 percent faster than the year prior, according to Michael Fiddelke, chief operating officer.
More from Sourcing Journal
LA Port Director Predicts 'Muted' Peak Season Despite Expected Cargo Surge
Target Challenged by Tariffs, Weak Q1 Sales and Profit Miss
US Ports Warn of $6.7B Bill if 100% Tariff on China-Made Cranes Kicks in
That number doubles the 11 percent faster delivery speeds experienced throughout 2024, in yet another example of national retailers cutting down delivery times on e-commerce orders. Walmart's U.S. operation nearly doubled the number of deliveries it made within a three-hour window from the year prior, the company revealed this month.
Fiddelke said in a Wednesday earnings call that faster delivery was one of many factors that contributed to the company's comparable digital sales growth of 4.7 percent.
The company touted its same-day delivery capabilities, with the option seeing 36 percent year-over-year growth in the company's first quarter. The growth is an acceleration from the 25 percent annual growth Target's same-day alternative experienced in the prior quarter.
Target also saw 'healthy growth' in the Drive Up curbside pickup option, which now accounts for nearly half the retailer's total digital sales.
'We fulfilled more than 70 percent of all Q1 digital orders within a day,' Fiddelke said, also noting that Shipt's driver network fulfilled 24 percent more packages year over year.
The talk of same-day services came two days after the company's announcement that it would remove same-day delivery price markups from more than 100 retailers and grocers through the Target Circle 360 paid membership program.
Previously, Circle 360 customers would have to pay more for same-day deliveries ordered from Target's network of retailers selling on the Shipt Marketplace, including CVS, PetSmart and Lowe's.
The successful delivery growth at Target couldn't save the company from posting largely disappointing first-quarter financial numbers.
Net sales dipped 2.8 percent to $23.8 billion in the quarter, reflecting a merchandise sales decrease of 3.1 percent. Total transactions declined 2.4 percent, with same-store sales dropping 3.8 percent. Net income increased 10 percent to $1 billion.
But the downward adjustment of its full-year guidance tells a bigger story.
Target now expects a low-single-digit decline in sales this fiscal year, compared with a previous forecast of net sales growth of about 1 percent. The retailer said it expects adjusted earnings per share, excluding gains from litigation settlements, to be about $7 to $9, compared with the prior anticipated range of $8.80 to $9.80.
CEO Brian Cornell wasn't as overt about tariffs resulting in higher prices as his counterpart at Walmart, Doug McMillon, but he acknowledged it was an option on the table, calling price 'the very last resort.'
Cornell said 'adjusting order timing—and where necessary—prices' would be levers to pull to minimize tariff headwinds, alongside negotiating with vendor partners, reevaluating assortment decisions and changing country of production.
China is the single largest source of merchandise Target imports, and it accounts for 30 percent of the goods the retailer sells within its private brands.
TJX, the off-price retailer operating the TJ Maxx and Marshall's brands, is more confident in navigating the tariff-heavy environment.
The company maintained its full-year sales and earnings outlook, with CEO Ernie Hermann saying that TJX expects to offset tariff pressures on both direct and indirect imports.
'We believe we can do this primarily through our buying process and our ability to adjust our ticket while maintaining our value gap and our ability to diversify our sourcing,' said Hermann in an earnings call Wednesday.
Hermann said the retailer could potentially see less inventory availability in some categories if vendor wholesalers or traditional retailers cut back on shipments, but the buying team would flow to adjacent value-focused categories in such a scenario.
The CEO also indicated that price changes were on the table, but that TJX would ensure it maintains its gap between its prices and those from traditional retailers.
'We believe there's opportunity for us to buy better. If retails do move out there, we will adjust our retails to preserve that gap. That could mean [prices] go up on certain items. If somebody actually adjusts—this is always the case—if they adjusted a retail down, we would do that as well.'
China, which had initially been slapped with the highest tariff rate of all countries at 145 percent, has a smaller footprint in TJX's supply chains than many retailers. Hermann said that less than 10 percent of the merchandise that retailer purchases for its U.S. businesses is directly imported from China.
Hermann calls that a 'very brand-driven' decision to have 'eclectic, well-balanced' mixes and assortments, rather than any intentional avoidance of the Chinese market.
'We don't swing the pendulum on those places,' Hermann said. 'So that is not something you'd see us play with a lot because obviously, we can move sourcing countries on our direct imports around and we could have China be less of a percentage. But we tend to hover around that 10-percent number.'
With that in mind, despite the recent acceleration in freight rates, in which containers from Shanghai to U.S. West Coast ports soared as much as 32 percent in the week ahead of May 16, TJX hasn't felt much of the effect given its small concentration of ocean freight.
'Our ocean freight rates are approximately 20 percent to 25 percent of our overall freight, so we're not as impacted on the ocean freight side,' said TJX chief financial officer John Klinger. 'We have not seen, to the point, costs go up. But again, it's early. The tariffs were just lowered.'
As far as China's impact on TJX businesses overseas like U.K. banner T.K. Maxx, Klinger said he has 'nothing significant' regarding shipments out of the country being redirected to Europe instead of the U.S.