A change in consumer spending as Americans moved from fixing up their homes to focusing on travel and nights out on the town caught large retailers like Target by surprise in early 2022. The swift shift has caused Target to cancel vendor orders and slash prices on home goods.
Target reported a 52% drop in profit in its first fiscal quarter compared to the same period last year, despite rising costs for things like fuel and a lightning-fast return by consumers to more normalized spending.
Demand for large TVs, kitchen appliances, and other items that were hot during the pandemic has since faded, leaving Target with an overstock that must be marked down to sell.
Target plans to stock up on inventory currently in demand, including groceries and makeup, as shoppers shift to post-pandemic spending. The retail giant is also dealing with higher labor, transportation, and shipping costs, prompting it to raise prices on goods that are in demand to make up for price cuts.
“Retail inventories are elevated,” Michael Fiddelke, Target’s chief financial officer, told the Associated Press in a phone interview Monday. “We determined that acting aggressively was the right way to continue to fuel the business.”
The retailer plans to solve supply chain difficulties by providing extra storage capacity near U.S. ports and working with suppliers to reduce the distances products travel. Target also said it would add five distribution centers over the next two fiscal years.
Brian Cornell, chairman and CEO of the Target Corporation, assured stockholders that all is well, stating that the company is continuing “to generate healthy increases in traffic and sales” despite the shifting consumer buying patterns.
He said the company is making changes in the second quarter that will result in additional costs in the short term but will improve profitability and pay off over time — in the second half of the year and beyond.
Target executives anticipate the company’s operating margin rate for the second quarter will be between 2% and 3%. A margin rate of around 6% is now Target’s mid-year operational expectation, which is higher than the average fall season performance in years leading up to this pandemic.
Target expects its full-year revenue growth to be in the low- to mid-single-digit range, and it expects to maintain or gain market share in 2022.
