February 8, 2023

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Target Will Cut Prices to Clear Out Unwanted Inventory, Taking a Profit Hit

2 min read

Target plans to cut prices and cancel orders to clear out unwanted inventory, announcing a series of steps on Tuesday to combat inflation and supply chain disruptions. The actions would cut its profit in the current quarter, the company said, pushing its shares down in early trading.

It is the latest move by a major retailer revealing how inflation and shifts in consumer habits are swiftly changing the outlook for business. Just three weeks ago, Target shocked investors with earnings that were much worse than expected, leading its shares to fall nearly 25 percent. It cut its forecast for profit then, and lowered it even further on Tuesday.

Target, like many retailers that faced skyrocketing demand in the early months of the pandemic, stocked up on goods as snarled supply chains delayed shipments. But consumers are now turning away from goods like furniture, appliances and other products for staying home and shifting to spending more on experiences and going out.

Target’s ballooning inventory reflects a mix of merchandise that hasn’t — or can’t, for supply chain reasons — keep up with this shift. “Trends have changed rapidly since the beginning of the year,” the company said in its statement. It said it planned to add storage capacity near ports to hold more goods and open more distribution centers to “add flexibility and speed” in its supply chain.

“It’s certainly a surprise,” said Michael Baker, a managing director and senior retail analyst at D.A. Davidson. “Not only were they over-inventoried — a lot of their competitors were over-inventoried as well, and that’s what they misjudged,” he said. Because other big-box stores were now also trying to slash inventory, Target is “going to have to be aggressive with markdowns,” he added.

Even President Biden weighed in on Target’s travails, saying in a statement mostly about the trade deficit that “one of the nation’s largest retailers announced that it will take swift action to…

Melina Delkic and Jason Karaian

2022-06-07 14:30:40

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