Smith Brain Trust / June 9, 2022

How Target Missed the Mark on Inventory

How Target Missed the Market on Inventory

Target missed the mark when calculating this season’s inventory and now the retailer is scrambling to liquidate extra items. The company is slashing prices to move items like patio furniture and household appliances to free up space on shelves and in warehouses. But how’d they get it so wrong?

Jie Zhang, professor of marketing and the Harvey Sanders Fellow of Retail Management at the University of Maryland’s Robert H. Smith School of Business, breaks down how Target’s inventory problems started and how they can fix it in a recent article in the Observer.

“They made their predictions around this time last year when there was surging demand,” Zhang said. “They thought that demand would stick. Unfortunately for them, it didn’t.”

Target, like many big retailers, make their inventory decisions way ahead of time on what and how much to order for vendors. Back in the spring of 2021, people had a lot of cash on hand, thanks, in part, to COVID stimulus checks. They were spending on home improvements.

“Demand was high for home office furnishings and for items needed for kids attending school virtually,” she said.

But then by the time products hit shelves for this summer’s shopping season, 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.”

Retailers also miscalculated on consumers’ apparel needs, she said. People had been dressing very casually when staying home because of the pandemic. But now they are trading leisure wear for more office-appropriate choices.

“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,” said Zhang.

Continued global supply chain disruptions have also added to the inventory problems, she 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.”

And then, of course, there’s inflation, she said. Americans, especially the poorest, are feeling it at the grocery store and the gas pump, and cutting back on purchasing “extras” – leaving those kitchen appliances and patio sets languishing on shelves.

Zhang says the best thing for Target and other retailers to do now is clear out the products people aren’t buying to make room for what is selling.

“Pretty soon there will be back-to-school shopping and then the holiday season,” she told the Observer. “Stores are trying to clear out excess inventory so they will be ready for that.”

So watch for deep discounts as retailers try to unload items. They are also opting to cancel orders from supplies, 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.”

Target’s Inventory Problem Won’t be Easy to Fix,” was published in the Observer on June 9, 2022.

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