It looks like a bullseye... but it's not. Target's food and home essential products are living their best lives — not shocking, since the only journeys we're taking lately are round trip fridge visits. But the discount retailer warned about its profits for the rest of the year. Target's sales this March, compared to March 2019:
- +20%: Rise in Target's overall sales
- +50%: Surge in sales of home essentials and food/drinks
- -20%: *Drop in sales of clothing/accessories *
A tale of two profits... "Apparel" is a much higher-margin product than food or home goods. That means Target can squeeze more profit out of every dollar of sales of clothes (compared to food). But since sales of stylish non-essentials are down, Target is losing on profit margin:
- Target sells leggings from its All In Motion activewear line for $30. Suppose they cost Target $4 to produce — since the brand is one of Target's private labels, it's especially cheap to make. So Target earns $26 in profit (or an 87% profit margin).
- Target sells a box of Cheerios for $3.80. Say it paid $1.80 to get it. Target makes $2 in profit (or a 52% profit margin).
- Apparel profits are bigger, both in pure dollar amount and as a percentage of sales — their profits add up faster.
Not all sales are created equal... Despite a surge in essentials sales, Target's loss in the apparel category is like a profit-sucking Dementor. So Target has made changes, like pausing plans to remodel 300 stores. The pandemic served up a double profit-killing whammy — Target is also splurging more on staff (working overtime) and sanitizing/virus-proofing its operations. It's even installing "sneeze guards."