Target has inventory glut as U.S. returns to old spending habits
Target is canceling orders from suppliers, particularly for home goods and clothing, and it’s slashing prices further to clear out amassed inventory ahead of the critical fall and holiday shopping seasons.
The actions, announced Tuesday, come after a pronounced spending shift by Americans, from investments in their homes to money spent on experiences like travel and nights out for dinner and other pre-pandemic routines. Shoppers are also focusing on non-discretionary items like groceries as inflation makes them more selective. That’s a change that arrived much faster than retailers had anticipated.
The speed at which Americans pivoted away from pandemic spending was laid bare in the most recent quarterly financial filings from a number of major retailers. Target reported last month its profit for the fiscal first quarter tumbled 52% compared with the same period last year.
Sales of big TVs and small kitchen appliances that Americans loaded up on during the pandemic have faded, leaving Target with a bloated inventory that it said must be marked down to sell.
Other retailers including Macy’s, Kohl’s and Walmart cited rising inventories when they reported
their quarterly earnings results last month. Walmart said at its annual shareholders’ meeting Friday that 20% of its elevated inventory were items the company wishes it never had.
Target declined to give a dollar amount of merchandise orders that are being canceled and depths of the discounts.
In aggressively clearing out unwanted goods, Target wants to make room for what is now in demand, including groceries and makeup products. But Target is also facing sharply higher costs for everything from labor to transportation and shipping, and it will offset price cuts where it can with higher prices for goods now in demand.
“Retail inventories are elevated,” said Michael Fiddelke, Target’s chief financial officer. “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.”