Target is hoping for a boost in holiday shopping as the retailer revealed a slump in sales over the past three months—leading to predictions of a dull holiday shopping season.

During the quarter ending on November 2, shoppers reduced their spending on clothing and other non-essential items like furniture, appliances, and electronics. However, sales for beauty products saw a 6% increase.

Looking ahead, Target anticipates flat comparable sales in the ongoing fourth quarter, which is crucial for holiday retail, indicating potential trouble for the industry overall.

In its third-quarter report, Target announced a 0.3% rise in comparable sales year-on-year, but it fell short compared to the average expectations set by analysts according to Bloomberg.

Comparable store sales experienced a 1.9% decline, while digital sales increased by 10.8% during the quarter, according to the company.

This forecast contrasts sharply with Walmart’s projected sales increase of between 4.8% and 5.1% for the same quarter, as revealed by the retailer on Tuesday.

“Consumers remain cautious with their spending, particularly in discretionary categories,” stated Target CEO Brian Cornell during a conference call discussing the company’s financial results.

Target shares fall sharply

Target’s stock experienced a significant decline of 20% in early Wednesday trading, bringing the year-to-date decline to about 14%.

‘Unstable operating conditions’

Despite a rise in in-store visits, Cornell described the third quarter as “an unstable operating environment” in the earnings report.

“We noticed several positive elements in the business, including a 2.4% uptick in store traffic, nearly an 11% increase in the digital sector, and ongoing growth in beauty and essential categories,” Cornell noted. “Yet, we faced unique challenges and cost pressures that affected our overall performance.”

Target reported total revenue of $25.7 billion for the third quarter, marking an increase of 1.1% from the previous year, but it was below the $25.9 billion that analysts from S&P Global Market Intelligence had predicted.

The rise in digital sales negatively impacted profits due to the higher costs associated with order fulfillment, as stated by the company. Additionally, there were elevated supply chain expenses stemming from managing higher inventories, which resulted from ordering more goods to preempt a potential port strike on October 1.

Target’s promotional event, Target Circle Week, held from October 6-12, drew in cost-conscious customers, but sales dropped in the weeks before and after the event, reflecting the shifting spending habits of consumers.

Executives expressed enthusiasm about the upcoming November 29 launch of Taylor Swift’s “The Tortured Poets Department: The Anthology” on vinyl and CD, exclusive to Target, which features four bonus acoustic songs and includes a poster of the artist.

During this period, the retailer added nearly 3 million new members to its revamped Target Circle loyalty program launched in April.

Additionally, Target has reduced prices on over 2,000 items for this holiday season.

Although foot traffic increased by 2.4% in the past three months, this was less than the 3% growth seen in the previous quarter.

However, customers were hesitant to make the discretionary purchases that are crucial for Target’s sales, noted eMarketer analyst Zak Stambor in an interview with YSL News.

“Target’s third-quarter results starkly differ from Walmart’s, highlighting the significant disparities in their product offerings. Groceries account for around 60% of Walmart’s sales but only 23% at Target,” he explained. “Walmart’s success in groceries has enabled it to attract wealthier shoppers, and its efforts to provide more premium products in beauty and apparel are helping it gain market share from Target.”

In contrast to Walmart and Costco, “Target hasn’t identified a successful strategy in this economic climate,” Stambor added. “While they claim to lower prices on nearly 10,000 items by the end of the holiday season, this approach isn’t enough to sway consumers’ spending habits.”

According to investment research firm CFRA, analysts believe Walmart is “performing better while Target is falling short.” Analyst Arun Sundaram remarked to Reuters that “Target’s circumstances have changed in the third quarter, and this softness is likely to extend into the holiday season.”

(Updates have been made to this story with the latest details.)