Pressured retailers are posting a complicated quarter — with a dash of ChatGPT

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If investors are expecting the holiday shopping season to boost retailers' prospects, they might want to avert their eyes from Target's (TGT) latest results. One of the industry's marquee businesses, the company posted shrinking customer purchases, slowing sales, and a cut profit guidance for the year. In essence, it issued a clear warning of a cautious consumer.

Where other retail stocks climbed after announcing new shopping partnerships with ChatGPT — in attempts to latch e-commerce to the economic rush of chatbot mania — Target's own announcement with OpenAI landed with a thud. Not even an exciting new tech initiative can outrun a series of bad quarters.

But earnings from the retail space haven't all been gloomy.

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TJX (TJX), the corporate owner of TJ Maxx, Marshalls, and Home Goods, beat expectations on the top and bottom lines and raised the outlook for the year. For the discount retailer, "The fourth quarter is off to a strong start," said CEO Ernie Herrman in an earnings call earlier this week.

Still, even impressive financial results from bargain brands might just confirm the idea of cash-strapped consumers, instead of bucking the trend of shoppers trading down in the hunt for deals.

A mixed bag of themes also played into results from home improvement stores. Lowe's (LOW) shares surged on Wednesday after the retailer raised its full-year sales outlook from $84.5 billion to $86 billion. The company saw further expansion of sales to professional builders and posted double-digit sales growth from its online storefront.

The positive results contrasted sharply with those of its rival, Home Depot (HD). CFO Richard McPhail said earlier this week that Home Depot customers report remaining on the sidelines due to an uncertain economic environment, which is preventing them from committing to renovations and improvement projects. Home Depot reported lower quarterly profit compared to a year ago and decreased its outlook for the year.

As if tariffs and trade uncertainty, stubborn inflation, and stiffening competition aren't enough for retailers to contend with, they also face a shifting landscape in how consumers find and compare their products. And that brings us back to ChatGPT.

In many ways, retailers are only now catching up to tech giants in turning their apps and websites into platforms for product discovery. But the ground beneath them is shifting again. If more Americans are forgoing search bars for chatbots, it makes sense for retailers to meet their shoppers where they are.

Even if that comes with a new set of challenges: the forfeiting of advertising space, the erosion of customer loyalty, and the loss of add-on sales.

That means retailers face the double whammy of a pressured consumer and, once again, an upended shopping experience that they don't fully control.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

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