![]() ![]() Still, Target seems optimistic about the growth ahead with the financial hit of its inventory problem allegedly behind them. For example, widespread job losses could hamper consumer spending. Additionally, many of the issues that big-box retailers could continue to face are outside of their control. However, it might take a while for costs to completely dial down. With signs showing that inflation has peaked, retailers like Target are optimistic that this would improve consumer confidence. “It’s taking that short-term impact now and making sure it’s not part of a longer-term impact that could become a huge problem during the holiday time period.” “They could have avoided some of that short-term pain, but that would have been a short-term gain instead of focusing on the long-term strategy,” Jashinsky said. Target just recently rolled out promotions for back-to-school, increasing its Target Circle offer for college students with 20% off a one-time purchase and extending its Teacher Prep Event. However, categories like home saw a single-digit decline in the quarter.īrad Jashinsky, director analyst at Gartner, said that deep discounts are what hurt Target this quarter. Its comp sales also grew 2.6% in the quarter driven by traffic growth and strength in food and beverage as well as beauty and household essentials. Inventory issues aside, Target’s total revenue grew to $26 billion in the second quarter from $25.2 billion last year. “Management teams and entrepreneurs who are very decisive in their actions and also do unpopular moves in order to protect the business typically turn out or come out stronger than others.” “When you see that something is going the wrong way, it’s better to take drastic actions,” said Marcel Hollerbach, chief innovation officer at commerce software company Productsup. Additionally, Target also dropped its fall merchandising orders by over $1.5 billion as part of its strategy. Executives noted that unit growth in its discretionary categories decelerated in the first and second quarter by over 15 percentage points. Target’s quarterly inventory assets were $15.3 billion compared to $15.1 billion in the first quarter and $11.3 billion around the same time last year. By the end of the second quarter, the company said it had reduced utilization capacity to below 80%. On Tuesday, Walmart said it made a 750 basis point inventory improvement compared to the first quarter.Įxecutives at Target noted that inventory in its distribution center network peaked at over 90% of its capacity in June. Retailers were forced to mark down items and turn to liquidators to make room for seasonal products. This year, though, more people are opting to spend money on travel and entertainment as opposed to discretionary goods.Īs a result, big-box retailers like Target and Walmart are left with goods that people don’t want to buy - at least at full price. Categories like home and apparel were high in demand over the course of the pandemic. ![]() Its elevated inventory levels were a result of shifting customer spending. “This positions our business to deliver a meaningful improvement in operating margin rates in the fall season.” ![]() “The financial impact of these inventory actions is now behind us,” Target CEO Brian Cornell said during a call with investors and analysts. However, executives said that they believe the short-term impact of the plan will position the company for growth in the coming months. This plan had been the main driver of its profit decline. In June, Target rolled out aggressive moves to adjust its inventory and match consumer demand, which included canceling orders and rolling out markdowns. ![]()
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