NEW YORK (Reuters) - "Target ( TGT ) is my backup option," said Chloe Guss, a shopper at the retail chain for nearly 20 years whose reservations about some of its products may spell trouble for the business.

The New Yorker, 38, mostly shops at Target ( TGT ) through her Instacart app for a few groceries and mainly diapers and formula for her children. But for clothing and furniture, Guss says she seeks out better quality elsewhere.

Target ( TGT ) - jokingly pronounced "Tar-zhay" in faux French by fans and critics of its "cheap chic" offerings - is expanding its own brands as trendy, affordable designer home goods, cookware and clothing are no longer enough to keep its customers loyal.

The Minneapolis-based retailer has more than 45 private labels, including Good & Gather and Favorite Day food brands, which generate more than $30 billion in sales each year.

However, its total U.S. retail market share, including online and store sales, has shrunk in categories that generate over 60% of its revenue, data from market research firm GlobalData ( GLDAF ) shows. Target ( TGT ) lost share in food and household goods, clothing, electronics, home wares and furniture in the first quarter, gaining only in beauty products.

Purchase rates and average spending per shopper have dropped, data provided by online shopping tracker PriceSpider shows.

Target ( TGT ) declined to comment, noting that CEO Brian Cornell said in May that Target ( TGT ) was focused on sales growth, which it expects to begin in the current quarter.

While major rivals said first-quarter sales rose from growing market share, Target ( TGT ) posted weaker comparable sales for the quarter ended May 4, its fourth straight drop. Target ( TGT ) cited macroeconomic factors such as delayed purchases and increased spending on activities outside the home, without mentioning market share losses.

Investors worry about Target ( TGT ) losing ground to warehouse-club chain Costco, Walmart ( WMT ) and Amazon.com ( AMZN ).

Target's ( TGT ) stock is up just 1.6% over the year, compared to jumps of 27% for Walmart ( WMT ), 28% for Costco and 21% for Amazon ( AMZN ). It trades at 16.36 times its forward earnings, compared to Walmart's ( WMT ) 27.31 and Costco's 49.75.

Target ( TGT ) and Costco appeal primarily to Millennial and Gen X urban white women with annual household incomes of $40,000 to $125,000, data from market research firm Numerator shows. Gap and Dick's Sporting Goods cater to similar customers.

Costco's Kirkland Signature brand has grown more popular, with significantly more households choosing it in early 2024, Numerator said. Costco on an earnings call noted market share gains in big ticket items like electronics and furniture.

Gap and Dick's Sporting Goods also increased their pieces of the pie with trendier merchandise and boosted sales of footwear, athletic apparel and sporting equipment, the retailers said.

Clothing sales in Target's ( TGT ) fiscal first quarter, however, fell at a low single-digit rate from the year-ago period, but rose from the prior quarter.

Target's ( TGT ) Good & Gather food and Up & Up household essentials brands, which compete with Kirkland Signature by Costco, lost household penetration share in the first calendar quarter, Numerator's data showed.

DEALWORTHY

To fight back, Target ( TGT ) in January launched its 'dealworthy' brand with nearly 400 items including iPhone chargers and toiletries below $10. This summer, it is cutting prices on 5,000 frequently bought grocery items and adding 125 more food items to its Good & Gather and Favorite Day brands.

Members of its Target Circle free rewards program get exclusive deals on electronics.

"This is a good start at remedying the growing issue of value, but we wonder whether it will be enough to stem the tide of customer erosion," GlobalData Managing Director Neil Saunders said.

From January through March, Target.com's weakest average orders were in electronics, toys and cleaning products, PriceSpider noted.

Average order values for items like kitchen appliances and TVs dropped nearly a third, while essentials like detergents and toilet paper fell by 25%.

Spending declines at Walmart.com and Amazon.com ( AMZN ) were less pronounced, down 9.3% for electronics at Walmart ( WMT ) and 0.55% at Amazon ( AMZN ) in the period.

Overall, Target's ( TGT ) purchase rate dropped 16%, and its average order value fell 28%, while Amazon's ( AMZN ) purchase rate grew nearly 8% and Walmart's ( WMT ) remained stable during the first quarter versus the year-ago period.

Target's ( TGT ) stores contributed about 80% of its $105.8 billion in sales last year, with the rest mainly coming from online channels. Amazon's ( AMZN ) retail business is predominantly online, while Walmart ( WMT ) generated $100 billion in e-commerce sales in 2023.

'REASONABLE' VALUATION

A broad consumer spending slowdown is partly to blame for Target's ( TGT ) troubles, said Burt Flickinger, managing director of retail consultancy SRG Insights. The U.S. Census Bureau reported lower sales of electronics, appliances, home furnishings and garden products over the past four months.

Target ( TGT ) expects second-quarter sales to range from flat to a 2% increase, but analysts noted that a 5.4% drop in 2023 makes these targets easier to achieve.

Some shareholders are optimistic that Target ( TGT ) will recover through its private-label expansion and price cuts.

"That is exactly what they should be doing in this environment," said Charles Sizemore of Sizemore Capital Management, which owns 5,000 Target ( TGT ) shares.