The Target Corporation announced a set of actions to right-size its inventory for the balance of the year and create additional flexibility. Profits will take a short term hit as the company institutes its plan including additional markdowns, removing excess inventory and canceling orders. The action plan also includes the addition of incremental holding capacity near US ports to add flexibility and speed in the portions of the supply chain most affected by external volatility; pricing actions to address the impact of unusually high transportation and fuel costs; and working with suppliers to shorten distances and lead times in the supply chain.
Target is further accelerating work that’s already in flight, including rapid revisions to sales forecasts, promotional plans and cost expectations by category. Specifically, the Company is planning for continued strength in frequency categories like Food & Beverage, Household Essentials and Beauty, and is planning more conservatively in discretionary categories like Home, while working with vendors to help offset higher costs. Lastly, Target will be building 5 new distribution centers over the next two fiscal years to better manage their supply chain.
“Target’s business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro environment, including shifting consumer buying patterns and rapidly changing operating conditions. Since we reported our first quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond,” said Brian Cornell, chairman and chief executive officer of Target Corporation.
Retailers from Walmart to Gap face a glut of inventory as inflation-pinched shoppers skip over categories that were popular during the first two years of the pandemic.