Target plans to mark down more goods and cancel orders as it resets inventory for changing shopping habits. The U.S. retailer announced the measures on June 7, 2022, saying it would take them in the second quarter while buying more cautiously for discretionary categories such as Home. Shoppers may find markdowns, while suppliers face canceled orders; the announcement is not a storewide price-cut promise. [S1]
The problem was not a broad fall in Target’s sales. Its May 18 earnings release reported first-quarter sales growth of 4.0% and comparable-sales growth of 3.3%. Yet inventory stood at $15.083 billion on April 30, up from $10.539 billion on May 1, 2021—about 43.1% higher by value. Those balances measure all inventory, not the amount Target considered excess. Read alongside the company’s account of weaker-than-expected discretionary sales, they show why a growing business can still have too much of the wrong merchandise. [S1][S2]
Target’s response is category-specific. It plans for continued strength in Food & Beverage, Household Essentials and Beauty while taking a more conservative approach to Home. It is revising sales forecasts and promotional plans by category, rather than treating every department as if demand had moved together. Shoppers should not read the markdown announcement as a storewide discount schedule: the same plan includes pricing actions to address high transportation and fuel costs, without specifying which prices would change. [S1]
The reset reaches back to the ports. Target plans more holding capacity near U.S. ports and work with suppliers to shorten shipping distances and lead times. In practical terms, markdowns address goods already offered for sale, while cancellations act on merchandise still on order. Extra holding space can ease the handling of goods, but cannot by itself make them sell. Target also retained plans to add five distribution centers over the next two fiscal years, separating its immediate inventory correction from its longer-term expansion. [S1]
The near-term cost appears in Target’s revised profit outlook. It now expects a second-quarter operating margin around 2%, compared with the wide range centered on 5.3% it forecast on May 18. Target expects a margin around 6% in the second half and still forecasts low- to mid-single-digit revenue growth for the full year. These are management expectations, not results from a completed clearance effort. The earlier first-quarter release had already attributed pressure on gross margin partly to markdowns for weaker discretionary sales, alongside freight, supply-chain disruption and higher distribution-center staffing costs. [S1][S2]
The announcement leaves suppliers’ exposure unclear. Target’s June 7 announcement gives no volume for cancellations, names no affected suppliers and sets out no compensation terms. It establishes that orders are part of the reset, not who will absorb the cost of each canceled shipment. [S1]
Source documents
- Target Corporation Announces Updated 2022 Plan Focused on Inventory Optimizationhttps://corporate.target.com/press/release/2022/06/target-corporation-announces-updated-2022-plan-foc
- Target Corporation Reports First Quarter Earningshttps://corporate.target.com/press/release/2022/05/target-corporation-reports-first-quarter-earnings