AI Won't Save Your Holiday Quarter. But It Might Save Your Business

Best Buy and Target both reported earnings on Tuesday and the results looked strikingly similar. Sales are down at both companies. Profits are holding, but each attributes that to cost cuts rather than stronger demand. Target's full-year revenue declined 1.7% to $104.8 billion. Best Buy's Q4 revenue came in at $13.8 billion, down about 1% year over year. Home Depot and Lowe's are dealing with comparable conditions. Walmart, with US comparable sales up 4.6% and an AI strategy arguably further along than any peer, and Costco, are the retailers holding up. Both compete primarily on value and essential goods. The split between those two groups points to something specific about where consumer spending is right now, and what retailers are doing in response. Building for the AI Shopper Both companies have been expanding revenue streams beyond traditional retail, layering media and platform businesses on top of their operations to protect margins when sales disappoint. Best Buy's advertising business brought in just over $900 million this fiscal year, up more than 7%, with advertising partners nearly doubling to 750. Target is scaling its Roundel ad network and third-party marketplace in parallel. On AI, the two retailers are at noticeably different points. Best Buy announced partnerships with OpenAI, Google's Universal Commerce Protocol, and commerce platform Wizard, framing the goal as embedding Best Buy's catalogue into AI-powered shopping experiences. McKinsey has estimated that this kind of AI-driven purchasing could account for up to $1 trillion in US retail revenue by 2030. Best Buy's stated aim is to be inside that transaction flow before it scales. Walmart's trajectory offers a useful point of comparison. The company built an AI framework around four super agents, enabled purchases within ChatGPT, and announced a partnership with Google's Gemini. Its customer-facing agent Sparky is already live, and customers who engage with it have an average order value 35% higher than those who don't. Walmart is also posting the strongest sales numbers in this peer group, though their pricing model and scale make it difficult to isolate AI as the driver. Target's earnings call handled AI more quietly. The CEO mentioned making search more conversational, and the CFO included AI within a broader package of planned technology investments. No specific partnerships were named. Brad Jashinsky, director analyst at Gartner, noted that Target's AI approach is contained within its own app, limiting its reach compared to Walmart's wider net through ChatGPT integration. Tariffs, Timing, and a Strange Holiday Season Consumers didn't abandon the holiday season, but they spent more carefully. Reuters was reporting expectations of a muted holiday as far back as November, with tariff policy cited as a key source of anxiety. A Nationwide survey found two in five consumers planned to spend less, buying fewer gifts or trading down to cheaper ones. Best Buy and Target reported the same basic shape to the quarter. Best Buy's enterprise comparable sales fell around 3% in November, recovered to roughly flat in December, and turned slightly positive in January. For Target, the CFO confirmed sales accelerated meaningfully in December and January after a slow November. Walmart executives described their own customers as becoming more "choiceful"; more selective about where and what they spent money on. Read more: Best Buy's Holiday Quarter Breaks a Winning Streak That selectivity fell hardest on categories where purchases can be delayed: electronics, home appliances, home improvement. Elevated interest rates compounded that dynamic in home improvement specifically, discouraging large renovation projects and suppressing appliance sales. Groceries and discount retail held steadier throughout. Electronics faced an additional pressure that didn't get much attention outside the earnings call. Best Buy flagged rising memory component costs and tightening supply heading into 2026. None of that changes a more basic problem. Tariff anxiety, cautious spending, and deferred purchases are largely outside any individual retailer's control. What AI potentially offers is something narrower: a way to capture more of the purchases that are happening anyway, grow margin through advertising and platform businesses, and reposition as something broader than a traditional retailer. Read more: Walmart Hit $1 Trillion Without Owning the AI Stack Target is focused on steadying its core business before making bigger bets. Best Buy has already placed one, on the same technology that is currently straining its supply chain. That's either a very good position to be in, or a very complicated one.

AI Won't Save Your Holiday Quarter. But It Might Save Your Business

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