Target Moves Ahead of Amazon

Since the beginning of the pandemic till the present, Target (TGT) has witnessed a consistent increase in its sales. During the most difficult times for the company, the chain worked to improve its already robust relationship with its patrons and spent wisely to adapt its operations to the shifting shopping habits of its clients in order to survive.

This has included increasing the number of possibilities for buy-online-pickup-in-store (BOPIS) as well as curbside pickups of orders placed online. Shipt, Target’s same-day delivery service, has also benefited from the retailer’s sustained investment. However, similar problems with inventory have plagued a great number of businesses, including this chain.

As a result of the pandemic, historical data on purchases were rendered less meaningful, and patterns of consumption have shifted. Because of this, there were shortages early on in the epidemic, and it was difficult to get toilet paper, paper towels, hand sanitizer, and a few other products. However, as a result of these shortages, the merchant now has an excessive amount of inventory in some locations.

During the chain’s first-quarter results call, CEO Brian Cornell disclosed that beginning in March, Target witnessed a precipitous decline in customer spending across its apparel, home, and hardlines product categories.

“While we anticipated a post-stimulus slowdown in these categories, and we expect the consumers to continue refocusing their spending away from goods and services, we didn’t anticipate the magnitude of that shift,” he said. “..this led us to carry too much inventory, particularly in bulky categories, including kitchen appliances, TVs, and outdoor furniture.”

As a result of these overages, the company is considering offering discounts on some of those things and selling through others in order to make room for high-quality inventory that might not be required immediately away. Cornell stated that the retail chain would place certain things on sale while holding onto others until they are required.

“And with very little slack capacity after two years of unprecedented growth, we faced elevated costs to store and indicated rightsizing our inventory position. Nevertheless, we’re still seeing healthy overall spending, I guess, even as their spending continues to evolve, “Cornell stated.

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Now, in order to fulfill those promises, Target has introduced an extended version of the yearly sale that it holds for students and teachers.

As part of its Target Circle rewards program, Target has made the decision to provide college students with a discount of 20% off their purchases. Additionally, it will reinstate tax-free weekends and expand the duration of its Teacher Prep event, which will now run from July 17 through September 10. This is six weeks longer than the program typically operates, during which time it provides teachers with a discount of 15% on school supplies.

Target’s Chief Merchandising Officer Jill Sando said, “We know the back-to-school season signals an important milestone for millions of families across the country – and we’re here to help by introducing even more ways for guests to save and find everything they need all in one convenient location,”

The store found itself in a position where it needed to make judgments regarding how to deal with having an excessive amount of inventory in some departments. During the results call, Chief Merchandise Officer Christina Hennington discussed the predicament the company was in as well as the decision the company made regarding how to address the situation.

“As we developed our plans for the quarter, our task was to anticipate how spending would change under circumstances no one had ever seen before, given that we were about to compare over two years of historically high federal stimulus payments. As such, we relied on numerous forecasts and estimates, both internal and external, to help determine our view for the quarter. Despite this careful approach, the mix of actual demand materialized differently than we had anticipated,” she said.

In essence, the chain needed to choose which products to keep in stock and which ones to discount in order to increase the speed at which they sold out.

“In addition, as supply grew and demand shifted away from bigger, bulkier products like furniture, TVs, and more, we needed to make difficult trade-off decisions. We could keep this product knowingit would sell over time or we could make room for fast-growing categories, like food and beverage, beauty and personal care, and household essentials,” she explained. “To preserve the quality of on-shelf presentations and support the guest experience, we chose the latter, leading to incremental markdowns that reduced our gross margin.”

Hennington sees an opportunity despite the fact that lower margins are currently a problem in the short term.

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“While these were difficult decisions, we believe they’ll pay off in the long term, given that building long-term loyalty remains our top priority,” she added.