𝐓𝐡𝐞 𝐖𝐢𝐝𝐞𝐧𝐢𝐧𝐠 𝐆𝐚𝐩: 𝐖𝐡𝐲 𝐖𝐚𝐥𝐦𝐚𝐫𝐭 𝐚𝐧𝐝 𝐓𝐚𝐫𝐠𝐞𝐭 𝐀𝐫𝐞𝐧'𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐒𝐚𝐦𝐞 𝐋𝐞𝐚𝐠𝐮𝐞 (𝐚𝐧𝐝 𝐋𝐢𝐤𝐞𝐥𝐲 𝐍𝐞𝐯𝐞𝐫 𝐖𝐢𝐥𝐥 𝐁𝐞)

Last year, I boldly declared that comparing Walmart and Target no longer makes sense...then proceeded to do it anyway. A year later? That gap has only widened, making the comparison even more lopsided (yet somehow more fascinating). I'm giving my take on the widening Walmart-Target gap before Target's March 4th earnings announcement. Here's what to watch for…

The Special Sauce Separating the Giants

When Walmart's CEO talks about "growing profit faster than sales," it's corporate-speak for something revolutionary: Walmart is becoming less dependent on selling stuff. Their “newer businesses” (their term) such as advertising (Walmart Connect), marketplace expansion, fulfillment services (WFS), and membership – contributed to over half of operating income growth last quarter. As CFO John David Rainey plainly stated, “The growth of this portfolio is expected to be one of the largest drivers of operating income growing faster than sales.”

Let that sink in.

A company synonymous with selling lots of stuff is now making more money from everything but products. Meanwhile, despite valiant efforts to diversify, Target remains overwhelmingly product-centric, leaving it vulnerable to the very headwinds Walmart has cleverly hedged against: tariff threats, supply chain disruptions, and economic instability.

Just this week, Target made a big announcement about, what else? Product and brand additions. This time, Target is adding 2,000 beauty items including 50 new brands. With 2024 same-store beauty sales up 6% in the third quarter and 9% in the second quarter, Target is clearly chasing a winner, but so is everyone else. When layered on top of its Ulta Beauty shop-in-shop concept, Target could find itself in too-much-of-a-good-thing territory.

Will Target’s beauty bonanza have a dilutive effect in the end or is the sky the limit? We shall see!

Either way, Target is doubling down on product-driven categories while Walmart diversifies beyond products altogether.

Tale of the Tape: By the Numbers

The financial story tells the diversify-or-die story. Over the last year:

• Walmart's global advertising grew 27% to about $4.4 billion

• Marketplace revenue increased 37%

• Nearly 45% of online orders were fulfilled by Walmart Fulfillment Services (WFS)

• Global membership income grew 21% to about $3.8 billion

AI on the Uptick

The topic of artificial intelligence is unavoidable in retail these days, yet Walmart did a good job of keeping it on the DL during its earnings call. CEO Doug McMillon mentioned a couple of bland-sounding implementations including  “new coding assistance and completion tools” that help Walmart deliver code faster and with fewer bugs, and a new AI agent that helps merchant teams get to the bottom of common challenges like out-of-stocks and over-stocks more quickly and accurately. But Walmart doesn’t need splashy announcements to prove that it is rocking AI behind the scenes.

Following the breadcrumbs from various presentations, including at this year’s NRF show, it’s clear that Walmart is amping up AI and automation across every facet of its business, including physical spaces. From AI shopping assistant upgrades to digital shelf label tests, delivery optimization, and drone drops, Walmart isn’t sleeping on leveraging its brick-and-mortar scale to the fullest and keeping in-store experience top-of-mind.

While Walmart embeds AI throughout its operations, Target's focus has remained more traditional.

Target has reported gains in its in-store fulfillment volume and resulting clicks-to-bricks efficiencies. Even so, it is still getting dinged on fundamentals like long checkout lines, clunky site-to-store experiences, and occasionally sloppy merchandising. In-store is where Target once shined and physical spaces are still the best showcase for its historic strong suits (proprietary brands, partnerships, and softlines). It can hardly afford to let its stores get musty or to lavish attention on hot categories like beauty as other areas of the store languish. Extreme in-store contrasts could draw attention to…well…what needs attention!

Identity Crisis vs. Clear Vision

Target finds itself in a deeply uncomfortable position – caught between its social justice positioning and a backlash that's hit it from both sides. The company that once boldly supported marginalized communities retreated in the face of controversy, leaving both allies and critics unsatisfied. For anti-diversity activists, nothing Target does will be enough. For marginalized communities, Target’s vaccillating feels like an unforgivable betrayal.

Between class action lawsuits alleging Target misrepresented risks associated with its DEI and Pride merchandise pushes and calls for boycotts as Target rolls back the DEI carpet, Target can’t seem to catch a break. Another former strength that has turned against Target.

Walmart? They've largely sidestepped this minefield. Consumers never expected Walmart to be a social champion, even though its corporate culture is more progressive than many realize. While Target faces distracting identity questions, Walmart has been granted the luxury of maintaining its laser focus on transformation.

Business Model Evolution: Sprinting vs. Jogging

Walmart is making pedal-to-the-metal moves on multiple fronts:

• Aggressive marketplace expansion bringing in higher-margin categories and higher-income shoppers

• AI and automation investments that are already paying dividends

• Convenience positioning that customers are willingly paying premiums for

• A fulfillment network that's building delivery density and improving margins

When Walmart declares, "We're not just known for value, we're also increasingly known for convenience," they're highlighting a strategic, two-fold pivot that's redefining consumer experience and expectations.

Target's progress? More measured, with incremental improvements that just haven't kept pace. Its "Expect More. Pay Less." proposition allowed Target to flex between upscale and value-based offerings as consumer spending patterns shifted. It served Target well historically, yet the formula now seems insufficient for today's retail realities.

Target has made efforts toward diversification with its advertising arm, Roundel, Target Plus marketplace, and its Target Circle loyalty program, but the difference in emphasis is telling. In its Q3 earnings call, these initiatives were mentioned almost parenthetically after extensive discussion of brands, partnerships, and culture. While noting “continued rapid growth in our Roundel ad business” (contributing to an 11.5% increase in 'other revenue'), Target provided little detail and quickly returned to product-centric discussions. The contrast with Walmart's prominent positioning of its diversification strategy couldn't be more stark.

Diversified and Durable

Target faces pressure from all sides:

• Upmarket: Specialty retailers like Abercrombie & Fitch and American Eagle are regaining footing

• Down-market: Digital disruptors like Shein are setting price points that are nearly impossible to match

• Direct competition: Walmart's marketplace expansion is allowing it to make gains in high-margin categories like apparel – traditionally Target's stronghold

On that last point, Walmart continues to express frustration with what it has at various times called “unfavorable mix shifts”. A bit more corporate-speak that translates to Walmart selling too many darned groceries and not enough high-margin general merch. New business model portfolio to the rescue! (Again). To quote Mr. Rainey, “More diversified and durable sources of profit like advertising and membership have enabled us to grow operating income faster than sales despite these headwinds.”

Silver Linings for Target?

It's not all storm clouds. As department stores struggle (Macy's, Kohl's, and JC Penney are shuttering locations), Target has an opportunity to capture displaced shoppers in many markets. This could be Target's moment to redefine itself as the savior for retail's "middling middle."

The question is whether Target can execute quickly enough to seize this opportunity while simultaneously buttressing its own version of Walmart's diversification playbook.

Looking Ahead: Divergent Paths

Wall Street may have spanked Walmart's stock after it issued cautious guidance, but make no mistake: these two retail giants are on increasingly different trajectories.

Walmart is positioning itself as retail's ultimate diversified portfolio – able to weather almost any storm while continuing to innovate. Target is still searching for its next act, hoping its foundational strengths will carry it through while it figures things out.

Walmart isn't saying it’s invulnerable to market conditions – but rather that it is better positioned than anyone else to handle whatever comes next. It’s hard to argue to the contrary and for now, that positioning advantage appears to be widening by the quarter.

With Target set to announce Q4 results on March 4th, all eyes (or at least mine) will be on whether they show progress in diversification efforts or if the gap with Walmart continues to widen.

Stay tuned for the sequel!

Carol Spieckerman is a retail strategist, speaker, and media contributor who is a frequent contributor to international business outlets including China Global Television Network (CGTN), The Wall Street Journal, Bloomberg, Business Insider, Retail Dive, and others. Her firm, Spieckerman Retail, helps diverse retail stakeholders navigate retail disruption and seize opportunities. Follow her on LinkedIn for more retail insights.