Target, like its rival Walmart, has long been a master of inventory management. Now, as the company announces it’s slashing prices to unburden bulging store and warehouse shelves, it’s hard to imagine how the stores’ buyers got it so wrong.
Mainly it comes down to shifting consumer demand and retailers needing to make purchasing decisions far in advance. Now Target is bent on fixing the problem, and fast.
“We have to be decisive and get out in front of this to make sure this doesn’t linger through the back half of the year,” CEO Brian Cornell said in an interview with the Wall Street Journal. Target did not respond to a request for comment.
Retail companies like Target make decisions way ahead of time, said Jie Zhang, a professor of marketing at the University of Maryland School of Business.
“For some it’s about a year ahead of time when they decide what to order and how much to buy from vendors,” Zhang said. “They made their predictions around this time last year when there was surging demand. They thought that demand would stick. Unfortunately for them, it didn’t.”
Back in the spring of 2021 people had quite a bit of cash on hand, Zhang said. “They spent it on home improvements,” she added. “Demand was high for home office furnishings and for items needed for kids attending school virtually.”
By the time the products arrived consumers’ buying habits had changed. “There was a huge shift,” Zhang said. “Early this year there was a drop in spending on goods and a big increase in spending on services and travel.”
Supply chain problems and inflation add to Target’s problem
Another big miscalculation was in apparel orders, Zhang said. “During the pandemic people tended to work from home and to dress casually,” she added. “Now they’re going back to the office or going out to restaurants and other entertainment venues so there’s a demand for dressy clothes.”
Compounding the problem was the disruption of the global supply chains, Zhang said. “Many shipments arrived later than expected and so the stores missed out on the best selling time window. All of that contributed to overstocked warehouses and stores.”
Inflation also ramped up, limiting consumers’ ability to make purchases. That was felt the hardest by the poorest Americans who shop at discount chains, Zhang said.
The best decision for Target and stores like it is to clear the shelves of products people don’t want so there will be room for what’s selling, Zhang said. “Pretty soon there will be back-to-school shopping and then the holiday season,” she added. “Stores are trying to clear out excess inventory so they will be ready for that.”
So Target and others have opted to sell unpopular items at deep discounts and to cancel orders from suppliers, Zhang said. “They’d rather pay a penalty fee to suppliers for cancellation than have more products shipped and add to the already excessive inventory.”
