Target warned investors Tuesday that its profits will take a short-term hit as it marks down unwanted items, cancels orders, and takes aggressive steps to get rid of extra inventory, reports CNBC. The retailer slashed its profit margin expectations for the fiscal second quarter from around 5 percent to around 2 percent to account for a wave of goods winding up deeply discounted or on the clearance rack. CEO Brian Cornell said the big-box retailer wants to clear room for the merchandise, including groceries and back-to-school supplies.
Total Retail's Take: In today's environment, retailers need to make quick and agile inventory decisions under pressure. “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.
Consumers are no longer as interested in products that were popular during the height of the COVID-19 pandemic and inflation is squeezing shoppers' wallets. By taking swift action, Cornell said Target can fend off further pain and make room for merchandise that customers do want, such as groceries, beauty items, household essentials and seasonal categories like back-to-school supplies. Target decided to roll out its new inventory plan after hearing competitors like Walmart had similar inventory woes.
Target is acting swiftly to get ahead of upcoming key sales seasons, right its inventory, and be prepared to stock items consumers want heading into 2023. Although its taking short-term losses now, Target leadership seems to have a long-term stable inventory strategy in mind, which figures to get it back to profitable growth in the future.
Kristina Stidham is the digital content director at Total Retail and sister brands Women in Retail Leadership Circle and Women Leading Travel & Hospitality at NAPCO Media. She is passionate about digital media and handles video, podcast and virtual event production for all brands. You can often find her at WIRLC, TR, WLT&H or industry events with her camera and podcasting equipment—or at home on Zoom—recording interviews with thought leaders and business executives.
Kristina holds a B.A. in Media Studies and Production from the Temple University Klein College of Media and Communication in Philadelphia. Go Owls! When she's not in the office, she loves to go on long walks, sing around the house, hangout with her family and two pet guinea pigs, and travel to new places.