Target's Strategic Weaknesses in Digital Commerce and Tariff Exposure Undermine Long-Term Growth

In the high-stakes arena of U.S. retail, the battle for market share is no longer fought in parking lots but in algorithms, logistics networks, and supply chain resilience. As of 2025, Target Corporation (TGT) finds itself in a precarious position, caught between the digital juggernaut of Amazon (AMZN) and Walmart's (WMT) relentless omnichannel expansion. While Target's curated brand and lifestyle-driven marketing have historically insulated it from direct price wars, its underinvestment in e-commerce infrastructure and vulnerability to U.S. tariffs now threaten its long-term margin sustainability and competitive positioning.

Digital Commerce: A Tale of Three Retailers

The data is stark. Amazon's 37.6% U.S. e-commerce market share in 2025 dwarfs Walmart's 6.4% and Target's 1.9%. Amazon's dominance stems from its AI-driven logistics, Fulfillment by Amazon (FBA) network, and Prime membership ecosystem, which together enable same-day delivery in 1,000+ cities. Walmart, meanwhile, has leveraged its 5,000+ U.S. stores as hybrid fulfillment centers, achieving 93% same-day delivery coverage and reducing last-mile costs by 20% through automation. Target, by contrast, relies on a hybrid model where 97% of online orders are fulfilled via stores, a strategy that lacks the scalability and speed of its rivals.

Target's digital sales grew 7.5% in 2024, but this pales against Walmart's 3.5 percentage-point contribution to its 4.5% total sales growth. Amazon's Q2 2025 revenue surged 13% year-over-year, driven by AI-powered demand forecasting and a $94 billion ad revenue pipeline. Target's mobile app engagement has also declined, with monthly active users dropping 4.1% year-over-year—a red flag for a company that relies on digital touchpoints to drive loyalty.

Tariff Exposure: A Hidden Margin Killer

Beyond digital commerce, Target's reliance on imports—50% of its cost of goods sold—exposes it to margin compression from U.S. tariffs. Bank of America analysts estimate Target would need to raise prices by 8% by 2027 to offset tariff impacts, compared to 4–5% for Walmart. This disparity stems from Walmart's proactive supply chain diversification: shifting sourcing from China to Vietnam and Thailand, and leveraging AI to optimize logistics. Amazon, with its global logistics network and private-label brands, is similarly insulated.

The consequences are material. Tariff-driven price hikes risk alienating price-sensitive shoppers, a core demographic for Target. Meanwhile, Walmart's “Everyday Low Price” strategy and Amazon's Prime discounts allow them to absorb costs without sacrificing competitiveness. For Target, the combination of higher tariffs and weaker digital engagement creates a double whammy: shrinking margins and eroding customer loyalty.

Capital Allocation and Shareholder Value

Target's capital allocation strategy further exacerbates its challenges. While Walmart and Amazon have reinvested heavily in AI, automation, and logistics (e.g., Walmart's $4 billion in logistics upgrades, Amazon's Trainium2 chips), Target has prioritized brand curation and store remodels. This misalignment is evident in its 2025 Q2 results: a 5.7% decline in in-store comp sales, partially offset by 4.7% digital growth. However, digital sales still account for just 22.8% of total revenue—a fraction of Amazon's 70.2% e-commerce share.

Investors should also note Target's recent strategic missteps. The end of its Ulta Beauty partnership and the reputational hit from its DEI policy reversal have compounded operational risks. In contrast, Walmart's “Walmart, Who Knew” rebranding and Amazon's Prime Day event in July 2025—coinciding with new tariffs—demonstrate superior crisis management and customer retention.

Investment Implications

For long-term investors, Target's strategic weaknesses in digital commerce and tariff exposure make it a high-risk proposition. While its lifestyle brand and loyalty program offer short-term differentiation, these advantages are eroding in a market where speed, scale, and cost efficiency reign supreme. Walmart and Amazon, with their robust supply chains and digital ecosystems, are better positioned to navigate macroeconomic headwinds and sustain margins.

Recommendation:
- Avoid overexposure to Target: Its elevated tariff risks and lagging digital adoption make it a laggard in the retail evolution.
- Prioritize Walmart and Amazon: Both have demonstrated superior capital allocation, margin resilience, and innovation in AI and logistics.
- Monitor Target's pricing strategy: A 8% price hike to offset tariffs could trigger a sales slump, further pressuring margins.

In the evolving retail landscape, survival hinges on adaptability. Target's current trajectory suggests it is not merely falling behind but being outmaneuvered by rivals with deeper pockets and sharper strategies. For investors seeking durable growth and margin stability, the path forward is clear.