Target is cancelling orders from suppliers, especially for home goods, and further slashing prices to clear out inventory before the holiday and fall shopping seasons.
These actions were announced Tuesday after Americans made a significant spending shift, shifting from their investments in homes to spending on experiences such as travel and dining out. As inflation increases, shoppers are also more focused on non-discretionary goods like groceries. This is a shift that happened much quicker than most major retailers expected.
A number of retailers have released their most recent quarterly financial filings, which reveal the rapid pace at which Americans are shifting away from spending on pandemics. Target reported last month that its fiscal first quarter profit plunged 52 percent in comparison to the same period last years. Target reported last month that sales of small appliances and TVs that Americans bought during the pandemic are declining. Target now has a large inventory that must be reduced.
When reporting their quarterly earnings results, Macy’s (Kohl’s) and Walmart highlighted rising inventories last month. Walmart stated at Friday’s annual shareholder meeting that 20% of its high inventory was items it wishes it didn’t have.
Target refused to disclose the dollar value of merchandise orders being cancelled and the depth of the discounts.
Target is clearing out all unwanted products to make way for the more in-demand items, such as groceries and cosmetics. Target faces sharply rising costs for labor, transportation and shipping. Target will compensate for this by raising the prices of goods in high demand.
Target’s chief financial officers Michael Fiddelke and The Associated Press spoke Monday to The Associated Press by phone. “Retail inventories have increased.” “And they certainly have been for us in some of those categories that we misforecast. We decided that aggressive action was the best way to continue fueling the business.
Target will work with suppliers to pay for vendors whose orders are cancelled. Fiddelke stated that in some cases raw materials meant for certain goods may be used instead for products with higher demand. He said that many of the products ordered to be canceled are subject to a nine-month production lead.
Target also announced it would add five distribution centres over the next two financial years.
Target stated that the move costs will impact the quarter’s bottom line. Target expects that its second quarter operating margin rate will now be around 2 percent. This is down from the 5.3 percent Target had anticipated last month. Target anticipates that Target’s operating margin rate will be around 6 percent for the second half. This rate is higher than the company’s fall season performance during the years prior to the pandemic.
Target predicted last month that its full-year operating margin rate would be between 6 and 7 percent. Target didn’t give a new full range prediction. Target also stated that it has additional space close to U.S. ports for merchandise storage to provide more flexibility.
Target expects full-year revenue growth of low to mid-single-digits and will continue to gain or maintain market share.
