Target is working to clear out inventory amid the economic downfall and holiday shopping seasons.
Target is aggressively getting in front of the economic crisis and pitfall of amassed inventory flood by slashing prices, particularly in the home goods and clothing sections, to clear out bloated inventory.
Target told its investors on Tuesday that they may experience a short-term hit to profits as they slash their prices to get rid of unwanted inventory, cancels orders, and take necessary steps to get rid of inventory.
This news came after a pronounced spending shift by Americans, as they are spending less money investing in home upgrades and renovations, and making more selective purchases on groceries, travel, and other pre-pandemic routines.
“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment,” CEO Brian Cornell said in an interview with CNBC.
As inflation across the country steadily rises, Cornell says swift action will allow Target to fend of further pain, and make room for items that are in greater demand, such as groceries, beauty products, household essentials and even prepare for seasonal items like back-to-school and the holidays.
He says the company will begin to see a much healthier profit margin in the later half of the year, increasing from it’s current operating margin rate of two percent to projected six percent as they get rid of stale inventory like TVs, small kitchen appliances, and other merchandise that was in greater demand during the pandemic that would shy customers away.
This isn’t just news for Target and it’s investors. Other major retailers have reported similar pains of inflated inventory and small profit margins as well.
Walmart said at its annual shareholders’ meeting on Friday that 20% of its elevate inventory is items they wishes they never had. Gap also cited elevated inventory levels and says customers tend to skip over fleece, hoodies, and activewear and focuses more on party dresses, and office clothes.
“Retail inventory is elevated.” Michael Fiddelke, Target’s chief financial officer said in a phone interview to the Associated Press on Monday. “And they certainly are for us, in some of the categories that we misforecast. We determined that acting aggressively was the right way to continue to fuel the business.”
Fiddelke says Target is working with suppliers to use raw materials from canceled orders toward other goods that are more popular and relevant in today’s market. The canceled orders have production lead times of up to nine months, he said, and shifting their bottom line for end-of-year sales as supply chain issues cool down is believed to be in the best interest of the company.