Spending has now shifted from these high-margin items to lower-margin items like groceries, Goldschmidt said. which could leave retailers with too much inventory, and more importantly, the wrong type of inventory."ĭemand softened for home products, like furniture, that were popular during the height of the pandemic as people were forced to spend more time at home. "Concurrently, consumer spending is gradually shifting from goods back towards services. "This has resulted in historically high logistics costs throughout the supply chain, from ocean, rail and trucking carriers, to warehousing, and now fuel costs," Goldschmidt said. Target, like other companies, ordered some merchandise several months in advance. Thomas' Department of Operations and Supply Chain Management. To confront shipping delays and sporadic shortages of products the last couple of years, many retail companies increased their inventory, said Kyle Goldschmidt, an assistant professor at the University of St. Macy's executives said they also predict higher fuel costs and markdowns needed to correct overstock levels this quarter. Walmart said higher labor and fuel costs, combined with a 33% jump in inventory, dragged down its profit this spring. Richfield-based Best Buy two weeks ago reported higher costs as it has been more expensive to get containers and fuel. Target isn't the only retailer to face profit challenges and inventory issues. The company lost a quarter of its market value on May 18 after surprising investors with profit cut in half by inflation costs and the change in shoppers' behavior. Target shares closed down more than 2% Tuesday. With the more aggressive actions needed to reduce inventory, they now think the operating margin rate will be around 2%. The Minneapolis-based retailer revealed when it announced its latest quarterly results on May 18 that its inventory soared 43% in the February-through-April period.Īt the time, executives said they expected the company's operating margin rate for the second quarter to be around the same 5.3% it saw in the first quarter of the year. But other prices across the store could gradually tick up as Target and other retailers compensate for higher costs. The strategy adjustments could provide relief to customers looking for deals on items like TVs, furniture and kitchen appliances as Target tries to push them out the door to make way for better-selling merchandise. "Over the past several weeks, 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," said Michael Fiddelke, Target's chief financial officer. The aggressive actions are a signal of just how difficult it has been for retailers to adjust to swings in consumer behavior. said Tuesday it will slash prices, cancel vendor orders and take other steps to cut its bloated inventory, moves that will lower its profit more than executives thought just three weeks ago. Now, they face the opposite problem - too much inventory.Īs customers gravitate toward spending more on services and necessities, stores like Target have grown desperate to shed the expensive and bulky backlogs of furniture and home electronics. Empty shelves plagued retailers during the height of the pandemic.
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