Targets Inventory Slash

Targets Inventory Slash

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On Tuesday, the Minneapolis-based group warned that it would offer deeper discounts after high inflation ate into consumer spending. The latest problem comes from US retailer Target (TGT)($156.02), which cut its profit outlook for the second time in less than a month amidst changing consumer shopping habits. The latter has forced Target to cancel orders and further markdown prices to clear excess inventories. 

The move expects to cut the company's second-quarter operating margin to about 2% compared with its prior estimate of 5.3%. Target's stock was down 31% for the year, and shares dropped 2% in early trading following the unexpected announcement. However, the store is not alone in this, with other retailers, including Walmart (WMT)($123.37), Gap (GPS)($10.58) and Urban Outfitters (URBN)($21.99), all stating that they are holding too much inventory of some product lines and plan to mark down prices and step up sales to clear the glut.

Even American stalwart Walmart has felt the brunt of the crisis. The retailer recently missed the mark with its earnings expectations, and shares are facing their worst time since 1987; after the announcement, Walmart shares followed Target and dropped 2.5%. 

Why it matters

It's been a quick turnaround from the past two years when Target and other big-box retailers stocked up on a wide array of merchandise such as electronics and furniture throughout the pandemic to respond to red-hot consumer demand. But many shoppers in recent months have altered their purchasing choices in response to the fastest jump in inflation in decades and the end of federal government pandemic stimulus payments.


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