<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1654620266580,"cms.content.publishUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1654620266580,"cms.content.updateUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_54620256", "obj": {"id":"27789","width":"16","height":"9","video":"1027584"} }); ","_id":"00000181-3f0d-dfdd-a99b-bfbf90910000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedTarget said Tuesday it is slashing prices on certain items and predicting worse short-term profits as inflation makes shopping less affordable for consumers.
Just two weeks earlier, the major retailer had reported lower-than-anticipated profits. The company explained that it has a glut of inventory and will have to mark down certain products and cancel orders as customers slow spending.
The company said the move is intended to “right-size its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment.”
Last month, Target estimated that its second-quarter operating margin would be more than 5%, although it is now anticipating that number to be closer to 2%. The change indicates a shift among consumers, who are now more inclined to spend their cash on services and essentials like gas rather than use their disposable income to buy goods.
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“We’ve had some additional time after earnings to really evaluate the overall operating environment,” Target CEO Brian Cornell told the Wall Street Journal. “We have to be decisive and get out in front of this to make sure this doesn’t linger through the back half of the year.”
The economic environment has been rapidly transitioning as inflation rises and the pandemic begins to fade into the rearview mirror.
For instance, some retailers have said they are having trouble selling goods like casual clothing, given that more offices are requiring workers to come to work in person, whereas over the past two years, many offices ran purely on remote work. Thus, demand for nicer clothing has increased, while demand for leisure wear has decreased.
Gap and Macy’s have also said they are marking down certain clothing items given the rapidly changing retail landscape. Target said its sales expectations for home goods have also declined, while demand for beauty products and food and beverages has grown.
The Tuesday news caused Target’s stock to falter, falling 7% at open. As of midday, shares were trading down more than 4% after recouping some of those initial losses.
Target has shed more than 34% of its value since the start of this year alone, an indicator that retailers are struggling to offload goods.
Inflation has been hitting consumers hard. Consumer prices increased 8.3% in the 12 months ending in April — slightly less than the month before but still the highest level since the early 1980s, when the United States was in the throes of the Great Inflation.
The CPI numbers for May are set to be released on Friday, and economists are closely watching to see whether the pace of inflation has crested and is beginning to fall as the Fed hikes interest rates. Even if the headline CPI number declines, it will likely be months before prices begin to fall back within the central bank’s 2% inflation target.
Target’s biggest competitor, Walmart, has additionally reported struggles this year. Its inventory is also bloated as customers shy away from certain goods. Walmart U.S. CEO John Furner said last week that about 20% of its inventory is merchandise the company doesn’t want to have.
Walmart’s shares are down about 15.6% since the start of the year.
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There is fear among some economists that the Fed’s rate hikes will cause demand to slow even more and knock the economy into a recession.
While the first quarter of this year saw a decline in GDP, more forecasters expect this quarter to see positive GDP growth, albeit slower growth than was forecast just months ago. The Congressional Budget Office recently released an economic outlook report indicating that U.S. real GDP will increase by 3.1% this year.
