New York — The goal is to eliminate orders from suppliers, especially for household goods and apparel, and to cut prices further to remove stockpiled clutter ahead of critical fall shopping seasons and holidays.
These measures come after an apparent shift in spending by Americans, from investments in their homes to money spent on travel, nights out for dinner and smarter clothes, a change that has arrived much faster than major retailers expected.
How quickly Americans have moved away from pandemic spending was revealed in the latest quarterly financial filings from a number of major retailers. Target announced last month that its fiscal first-quarter earnings fell 52% compared to the same period last year. Sales of the big TVs and small kitchen appliances that Americans carried during the pandemic have vanished, leaving Target with a bloated inventory that it said should be set up for sale.
Target refused to give the dollar amount of merchandise orders being canceled and the depths of discounts.
In aggressively eliminating unwanted merchandise, Target wants to make room for what’s needed right now, including groceries and makeup products. But Target is also facing sharply higher costs for everything from labor to transportation and shipping, and will offset price cuts where possible with higher prices for goods in demand now.
“Retail stocks are up,” Target CFO Michael Fedelek told The Associated Press in a phone interview Monday. And it certainly fits us, in some categories we’ve mis-predicted. We’ve decided that acting aggressively is the right way to continue fueling business.”
Target works with suppliers to cover costs for their sellers whose orders are canceled. In some cases, some of the raw materials that were intended for some goods will be used instead for other, higher-demand products, Videlc said. He said many orders for products that are canceled have a long production lead time of up to nine months.
Target also announced that it will add five distribution centers over the next two fiscal years.
Target said costs related to the moves will hurt the latest profit in the current quarter. Target now expects second-quarter operating margin to be around 2%, down from about 5.3% it forecast last month. For the second half of the year, Target expects an operating margin rate in the around 6% range, a rate it said would exceed the company’s average fall season performance in the years leading up to the pandemic.
Last month, the target forecast for full-year operating income margin rate would be in the 6% range. The target did not give a new full range prediction. It also said it secured additional space near US ports to carry goods to allow for more flexibility.
However, Target still expects full-year revenue growth in the low-to-medium single-digit range, and expects to maintain or gain market share for the year.
Target Corp. shares. It was down 9% at $145.30 in pre-market trading on Tuesday and other retailers’ stocks fell with it. Walmart, Nordstrom and Macy’s prices fell between 2% and 4%.
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