Target, Macy’s and Dollar Tree Prep for a Tough Year Despite Holiday Success

While the 2022 holiday season was an overall success, the specter of a potential recession was clearly looming over the retail industry in the final months of the year. That pressure can be felt in the Q4 2022 results and fiscal 2023 outlooks released by a multitude of retailers this week.

Walmart has already warned of an economic slowdown in the coming year, noting that shoppers’ savings rates are about half of what they were during the pandemic. Other retailers planning to use Q4 momentum to gird their business for a slow fiscal year include:

  • Target: The retail giant’s Q4 comparable sales increase was modest at 0.7%, but it managed to reduce its excess inventory while bringing in new customers, and it plans to fight economic headwinds with investments in store remodels, new brands and additional last-mile options;
  • Macy’s: The ailing department store’s comparable sales were down 2.7% during Q4, but they were up 0.6% for the year as a whole and the decline was partially due to the retailer’s strategy of avoiding deep discounts as it pursues profitability; and
  • Dollar Tree: The off-price retailer has been thriving with comparable sales up 8.7% at its flagship banner and up 5.8% at Family Dollar stores, but even discounters are facing cautious consumer spending and employee pay raises that aren’t expected to pay off for some time.

Target Invests in Price and Speed to Attract Shoppers

Target ended Q4 with inventory 3% lower than in 2021, a sign that the retailer has managed to overcome the excesses it struggled with through the first half of 2022. The retailer’s strategy for the latter half of the year was to accept a short-term profitability hit in order to right-size its inventory, which may have led to its slow sales growth in Q4.

Now that supply chains have stabilized, Target is focusing its investments on areas that will help it compete in an increasingly tight market. The retailer will invest between $4 billion and $5 billion in capital expenditures in fiscal 2023 to achieve initiatives including:


  • Launching or expanding more than 10 private label brands and stocking more items at lower price points, including $5, $10 and $15;
  • Opening 20 new stores and remodeling 175 existing locations;
  • Expanding its network of specialized delivery hubs to offer speedier last-mile services, including curbside pickup; and
  • Launching drive-up returns capabilities to further bolster convenience.

“Given value is absolutely top of mind right now, being able to deliver affordable joy differentiates us in the marketplace,” said Brian Cornell, CEO of Target on a call with investors. “That’s a clear advantage in the near term and remains our focus over the long term.”

Macy’s Sees its Future in Luxury and Off-Mall Locations

Macy’s has been diligently modernizing its operations for the past several years, and its performance in the coming months will be a sign of whether its efforts are paying off. One advantage is that, unlike many other retailers, Macy’s hasn’t had to deal with an inventory glut — stock levels were down 3% year-over-year at the end of last year.

Macy’s also is seeing strong performance from its higher-end banners. Bloomingdale’s comparable sales rose 0.6% year-over-year, while Bluemercury posted a solid comparable sales increase of 7.2%. Beauty sales were a bright point at both businesses.

However, Macy’s saw the same signs for a tough 2023 as other retailers and is taking steps to prepare itself. The retailer will initiate a refresh of its private brands, open more off-mall stores, grow its online marketplace and capitalize on the success of Bloomingdale’s and Bluemercury by expanding its luxury business.

“In the fourth quarter, we benefited from our disciplined inventory approach and compelling gift-giving strategy, which allowed us to provide fresh fashion and style at great values for all our customers,” said Jeff Gennette, Chairman and CEO of Macy’s in a statement. “We were competitive but measured in our promotions, took strategic markdowns and intentionally did not chase unprofitable sales. As we look to 2023 and beyond, we believe our five growth vectors, which include our private brands reimagination, off-mall expansion, online marketplace, luxury brands acceleration and personalized offers and communication will further solidify our modern department store positioning.”

Dollar Tree Invests in its Future with Associate Pay Raise

Periods when shoppers cut back can be beneficial for discounters, as shown by Dollar Tree’s strong Q4 2022 results, but the retailer is still expecting challenges in the coming year. Dollar Tree’s outlook includes about $430 million in operating expenses across a number of investments, including plans to increase average wages by $2 per hour.

“We expect these labor and wage investments will drive improved execution in our stores, higher sales, lower turnover, attraction of and retention of talent, reduce shrink, and greater productivity and efficiency,” said Rick Dreiling, Chairman and CEO of Dollar Tree on a call with investors. “Our associates and field personnel are critical to our transformation journey, and we are excited about the investments in our talent. We are looking to invigorate the culture of this business, give our local operators and associates the tools they need to execute and importantly provide them the opportunities they deserve to grow within our company.”

However, the off-price retailer only expects to earn “minimal benefit” from these investments in the coming year, though it believes they will set up the company for a strong 2023. Additionally, year-over-year comparisons for the first half of the year are expected to be poor due to Dollar Tree shifting its baseline price tag to $1.25 in early 2022, which resulted in a significant margin increase that won’t be repeated in the coming year.

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