Target puts excess inventory in crosshairs; will build five DCs

Dan Berthiaume
Senior Editor, Technology
target store exterior
Target plans to improve its bottom line by eliminating unnecessary inventory.

Target Corp. seeks to right-size its inventory for the remainder of 2022 and greatly expand its distribution infrastructure.

Following a generally disappointing first quarter of fiscal 2022 that included challenges such as inventory that arrived too early or too late and freight and transportation costs that came in much higher than expected, Target is planning several actions in the current second quarter.

These include setting additional markdowns, removing excess inventory, and canceling orders. In addition, Target plans to build additional capacity in its upstream supply chain to support future growth by adding five distribution centers over the next two fiscal years.

The action plan also includes the addition of incremental holding capacity near U.S. ports, in what Target says is an attempt to add flexibility and speed in the portions of the supply chain most affected by external volatility.

Target also intends to take pricing actions to address the impact of what it terms “unusually high” transportation and fuel costs; as well as to work with suppliers to shorten distances and lead times in the supply chain.

Other steps Target plans to follow to combat higher inventory costs and better track supply chain performance include:

  • Create rapid revisions to sales forecasts, promotional plans and cost expectations by category. Specifically, Target 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, where it says trends have changed rapidly since the beginning of 2022.
  • Control costs through actions including continuing ongoing work with vendors to help offset inflationary pressures, driving continued operating efficiencies, and reducing costs while preserving customer experience.

"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,” said Brian Cornell, chairman and CEO of Target Corp. “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,"

Target alters guidance
Target now expects its second-quarter operating margin rate will be in a range around 2%. For the back half of the year, Target now expects an operating margin rate in a range around 6%, a rate that would exceed the Company's average Fall season performance in the years leading up to the pandemic.

The company continues to expect full-year revenue growth in the low- to mid-single-digit range, and expects to maintain or gain market share in 2022.

Minneapolis-based Target Corp. operates nearly 2,000 stores across the U.S. and the e-commerce site.

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