Faced with huge inventory, Target cuts supplier orders and prices

Target is canceling orders from vendors, especially for homewares and apparel, and further slashing prices to clear stock piled up ahead of the critical fall and holiday shopping seasons.

The actions, announced Tuesday, come after a pronounced shift in spending by Americans from investing in their homes to spending money on experiences like travel and dinner parties and other pre-pandemic routines. Shoppers are also focusing more on non-discretionary items like groceries, as inflation makes them more selective. It’s a change that has come much faster than major retailers anticipated.

The speed at which Americans have moved away from pandemic-related spending has been laid bare in the latest quarterly financial reports from a number of major retailers. Target announced last month that its profit for the first fiscal quarter fell 52% from the same period last year. Sales of big TVs and small kitchen appliances that Americans loaded up during the pandemic have faded, leaving Target with a bloated inventory it says needs to be cut to sell.

Other retailers, including Macy’s, Kohl’s and Walmart, cited rising inventory when they reported quarterly results last month. Walmart said at its annual shareholder meeting on Friday that 20% of its high inventory is items the company wishes it never had.

Target declined to give a dollar amount of merchandise orders that are canceled and the depth of the discounts.

By aggressively eliminating junk, Target wants to make room for what’s currently in demand, including groceries and makeup products. But Target also faces significantly higher costs for everything from labor to transportation and shipping, and it will offset price drops where it can with higher prices for goods currently. required.

“Retail inventory is high,” Target CFO Michael Fiddelke told The Associated Press in a phone interview Monday. “And they certainly are for us, in some of the categories that we mis-predicted. We determined that acting aggressively was the right way to continue to fuel the business.”

Target works with vendors to cover the costs of their vendors whose orders are canceled. In some cases, some of the raw materials for certain products will instead be used for other products that are more in demand, Fiddelke said. Many canceled product orders have a long production lead time of nine months, he said.

Target also announced that it will add five distribution centers over the next two fiscal years.

Target said moving-related costs will hurt the current quarter’s bottom line. Target now expects its second-quarter operating margin rate to be about 2%, down from about 5.3% it had forecast last month. For the second half of the year, Target expects an operating margin rate in a range of around 6%, a rate it said would exceed the company’s average fall season performance in the years before the pandemic.

Last month, Target expected its full-year operating margin rate to be around 6%. Target did not give a full new prediction. It also said it has secured additional space near US ports to store cargo to allow for more flexibility.

Target, however, continues to expect full-year revenue growth in the low to mid-single digit range and expects to maintain or gain market share for the year.

Shares of Target Corp. fell nearly 4%, or $5.93 to $153.74 in afternoon trading on Tuesday.

By ANNE D’INNOCENZIO, Associated Press.