Target vs. Walmart: AI-Driven Retail Battle for Gen Z's Wallet

Target's CEO is betting billions that Gen Zers will get off their phones and fuel a comeback

According to market analysis

Target Corp. (TGT) is doubling down on artificial intelligence and physical expansion to lure Gen Z shoppers, aiming to reverse a string of sales declines and reassert its dominance in the retail sector. The retailer's strategy, unveiled at a recent investor event, centers on leveraging AI-driven fashion trends, synthetic consumer models, and partnerships with tech firms like OpenAI to create a more personalized and efficient shopping experience.

"By leveraging AI to capture color, material, style and product details in applying consumer research and our brand principles, we can deliver unique and on-trend products to our guests faster than ever before," said Target's head of merchandising, as reported in a MarketWatch analysis. The company has also developed "synthetic audiences," AI-backed simulations of real consumer populations to test how different demographics might respond to campaigns and products before they launch.

The move comes as Target faces stiff competition from Walmart Inc. (WMT), which has outperformed it during the ongoing cost-of-living crunch. Walmart has also embraced AI to bolster its fashion offerings, partnering with OpenAI to enable purchases via ChatGPT. Meanwhile, Walmart is in advanced talks to acquire R&A Data, an Israeli-founded startup specializing in detecting scams and counterfeits on online marketplaces. The potential acquisition, if completed, would enhance Walmart's ability to monitor its sprawling third-party marketplace, which grew 25% in the U.S. during its most recent quarter.

Target's focus on AI aligns with broader trends in retail and fintech, where companies are increasingly integrating generative AI to streamline operations and personalize customer interactions. BiyaPay, a global fintech platform, recently upgraded its systems to improve transaction traceability and introduce fractional stock trading, aiming to lower investment barriers for younger users. Similarly, Affirm Holdings Inc. CEO Max Levchin has argued that AI will redefine shopping and payments, enabling "agentic" shopping experiences where AI agents handle tasks like price comparisons and purchase decisions.

The stakes are high for Target, which has seen comparable sales drop more sharply than expected in recent quarters. Its new approach includes expanding store footprints and using AI to optimize inventory, allowing employees to focus more on customer service. "We're not just competing on price-we're competing on experience," a company executive said, according to MarketWatch.

While Walmart's third-quarter guidance suggests it may report revenue of $175.17 billion, up 3% year-over-year, analysts remain cautious about Target's ability to regain momentum. However, Target's emphasis on Gen Z-digitally native shoppers who prioritize convenience and personalization-could pay off if executed effectively. The retailer's partnerships with OpenAI and its AI-driven product development models signal a shift toward data-centric retail, mirroring strategies adopted by tech-savvy firms like Gen Digital Inc. (GEN), which saw 25.1% year-over-year revenue growth in its latest quarter.

As the retail landscape evolves, the success of Target's AI-driven revival will hinge on its ability to blend cutting-edge technology with the in-person shopping experiences that still drive a significant portion of consumer spending.