Target will SLASH prices on unwanted items as it tries to get rid of $15 billion in inventory


Target will SLASH prices on unwanted items headed for the clearance rack as it tries to get rid of $15.1 billion in piled-up inventory: Shares slide 4% as investors are warned that profits will take a short-term hit

  • Target has announced that it will cut prices and cancel orders for thousands of its products, as part of a frantic effort to clear out billions in backed-up inventory
  • The pent-up products consists of bulky items such as furniture, that were a commodity during the pandemic but have fallen out of favor in recent months
  • The company says it had nearly $15.1 billion of inventory as of April 30, the end of the first first fiscal quarter
  • The amount serves as nearly 50 percent more than that seen just a year ago 

Target has announced that it will cut prices and cancel orders for thousands of its products, as part of a frantic effort to clear out billions in backed-up inventory.

The pent-up products consist of bulky items such as furniture, that were a commodity during the pandemic but have fallen out of favor now that restrictions have loosened, Target said Tuesday.

The company says it had nearly $15.1 billion of inventory as of April 30, the end of the first first fiscal quarter. The amount serves as nearly 50 percent more than that seen just a year ago.

In a statement to investors, brass for the big-box store warned the flash sales – which will likely see prices drop on items such as TVs, patio furniture, and home appliances – and cancellations would cut its expected profits this quarter by more than half. 

The bulletin noted that in addition to the markdowns, the plan will see staffers at the chain’s nearly 2,000 ‘remove excess inventory’ and cancel thousands of orders.

In the announcement, organizers asserted that the plan comes in response to record inflation seen throughout the country and still-lingering supply chain issues spurred by the pandemic. 

The announcement – which came just weeks after executives acknowledged its inventory surplus but predicted normal profits for the current quarter – caused Target shares to slide 4 percent Tuesday, after falling 7 percent in early trading.

Target has announced that it will cut prices and cancel orders for thousands of its products, as part of a frantic effort to clear out billions in backed-up inventory

Target has announced that it will cut prices and cancel orders for thousands of its products, as part of a frantic effort to clear out billions in backed-up inventory

The announcement - which came just weeks after executives acknowledged its inventory surplus but predicted normal profits for the current quarter - caused Target shares to slide 4 percent Tuesday, after falling 7 percent in early trading

The announcement – which came just weeks after executives acknowledged its inventory surplus but predicted normal profits for the current quarter – caused Target shares to slide 4 percent Tuesday, after falling 7 percent in early trading

Speaking to CNBC Tuesday, CEO Brian Cornell explained the measures his company is taking to address the backlog, and the importance the early-morning announcement will have on this quarters’ sales.  

‘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,’ Cornell said  

Cornell said that by taking immediate action with the sales and cancellations, Target can fend off further losses by making room for merchandise that customers do want, such as groceries, beauty items, household goods, and back-to-school supplies.

The exec further asserted to the outlet that the company’s stores and website are still seeing strong traffic, but pointed out that previously sought-after categories made popular during the Covid era, such as bulky furniture and TVs now sitting in warehouses, have consequently seen their popularity plummet.

‘We want to make sure that we continue to lean into those categories that are relevant today,’ the CEO said.

Speaking to The Star Tribune Tuesday, Target CFO Michael Fiddelke seemed to echo his head exec’s sentiments, noting that the company’s pronounced approach to the backlog may see profits restored ahead of the back half of the year.

‘Over the past several weeks,’ Fiddelke said, ‘we’ve continued to assess the broader retail environment and I think it’s no secret right now based on what’s been reported, the level of inventory across all retail is pretty high.’ 

He went on: ‘We got more of that product than we want to have, and we think dealing with that head-on by being aggressive now positions us with the right flexibility for the back half of the year.’ 

The cancellations, which the exec says mostly applies to large items taking up space in the company’s hundreds of warehouses, would come at a cost to the retailer, Fiddelke says – a price he said he and other execs are willing to pay if it provides more flexibility and a more pleasing retail experience for customers.

And while excess inventory will be marked down, Fiddelke said that shoppers can expect overall prices to swell this summer, as the company deals with higher transportation costs and ongoing inflation.

‘Price is the last lever that we pull,’ Fiddelke conceded Tuesday, before adding, ‘But price increases are unavoidable given the inflationary pressures that we’ve seen in many categories.’

In regards to addressing lingering supply chain issues hampering its ability to unload products from warehouses, the company said Tuesday that is engaged in plans to increase storage capacity near ports to hold more goods.

The store will also open more distribution centers to ‘add flexibility and speed’ to its embattled supply chain, which includes 49 distribution centers across 23 states.

The chain’s distribution network, up until now, had remained largely the same for more than a decade prior to 2021, even as the retailer added automation and adjusted warehouse designs to serve its growing business.

The store, which is based in Minneapolis, is not the only big-box option to report rapidly rising inventory levels this spring, as the country grapples with unprecedented inflation seen during the Biden Administration and consumer habits shift as people return to work and school.

Last month, Richfield-based tech retailer Best Buy announced it would prepare for a ‘slowdown’ in sales as it reported higher operating costs than predicted for the first quarter of 2022.  

Target competitor Walmart, meanwhile, has also said that higher labor and fuel costs, as well as 33 percent jump in backlogged inventory, dragged down profits for the store this spring.    

Source

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