The insight: Retailers face a Catch-22 over their DEI policies. Dialing back initiatives invites boycotts—but standing firm does too, as US consumers increasingly choose to vote with their wallets in a highly charged political environment.

Target in the hot seat: No retailer understands this dynamic better than Target, whose approach to diversity, equity, and inclusion has earned the ire of both right-wing activists and campaigners on the left.

• Florida’s pension board has joined a suit against the retailer over its DEI practices. Target is accused of misleading investors about the blowback from its decision to pull some Pride merchandise in 2023, after misinformation campaigns led to threats against stores and employees.
• At the same time, the NAACP and other civil rights activists are urging consumers to boycott the retailer following its decision to roll back DEI initiatives.

The risks: The growing controversies over DEI could have a material effect on companies’ performance in both the short and long term.

Roughly 1 in 4 (24%) of consumers have stopped shopping at their favorite stores because of politics, according to a Guardian-Harris Poll.

• That’s particularly true for Black consumers (25%), Democrats (31%), and Gen Z (32%).
• And nearly half (45%) of Democrats have stopped shopping at companies that have opposing political views to their own, as have over a third (34%) of Republicans.

In the long term, retreating on DEI could hurt companies’ ability to serve their consumers.

• Coca-Cola warned that challenges to diversity policies could hinder its growth by making it difficult to attract or retain talent “with diverse perspectives, experiences, and backgrounds that reflect the broad range of consumers we serve around the world.”
• Likewise, Costco noted that having a more diverse set of employees helps enhance customer satisfaction, particularly as its membership base diversifies.

The caveat: Consumers’ responses to survey questions don’t always align with their actual behaviors. But data from Placer.ai shows that Target saw its first drop in store visits this year in the week after its DEI announcements, with foot traffic continuing to fall throughout the rest of the month.

• It’s difficult to know how much of that stems from consumer backlash—and how much is the result of other pressures Target is facing, including a broader decline in discretionary spending.
• Still, it’s worth noting that Costco, which has notably stood firm on DEI, experienced a YoY increase in traffic during the same three-week period.

Our take: Even if the share of consumers willing to pull back from a particular brand or product is smaller than the Guardian-Harris poll would suggest, there are still likely many consumers who are ready and willing to alter their spending habits in response to brands’ actions. That makes taking—or dropping—a stance a double-edged sword for retailers.