Target Corp. (TGT)

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Target (TGT) Makes a Bold Move Ahead of Amazon Prime Day
By: TheStreet | July 9, 2022

• The retailer has gone through some supply chain and pandemic-related inventory problems and some of its customers may benefit.

Target (TGT) has seen its sales steadily rise from the beginning of the pandemic through now. The chain strengthened its already-strong relationship with its customers during the darkest covid days and has spent judiciously to evolve its business to accommodate changes in how customers shop.

That has included expanding the availability of curbside pickup as well as buy-online-pickup-in-store (BOPIS) options. Target has also continued to invest in its Shipt same-day delivery service. The chain has struggled, however, as have many others, with inventory issues.

The pandemic made past purchasing data less-than-useful and consumption patterns have changed. That led to shortages early in the pandemic -- when it was hard to buy toilet paper, paper towels, hand sanitizer, and a few other items -- and now it has left the retailer with too much inventory in certain areas.

Target saw a rapid slowdown in spending in its apparel, home, and hardlines categories beginning in March, CEO Brian Cornell said during the chain's first-quarter earnings call.

"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."

Those overages have led to the company looking to discount some of those items and sell through others to clear space for good inventory that may not be needed right away. Cornell said that the chain would discount some items and

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.

Now, Target has made good on those promises with an extended version of its annual sale for students and teacher.

Target Rolls Out Student, Teacher Discounts

Target has decided to offer college students a 20% discount through its Target Circle rewards program. It's also bringing back tax-free weekends and will extend its Teacher Prep event from July 17 through September 10. That's six weeks longer than the program, which offers teachers 15% off on school supplies, usually runs.

"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," said Target Chief Merchandising Officer Jill Sando.

Target will also offer its special "Deal Days," (essentially its answer to Amazon's (AMZN) Prime Day from July 11-13

Target Had to Make Tough Inventory Choices

The retailer ended up with too much inventory in certain areas and it had to make decisions as to how to handle that.

Chief Merchandise Officer Christina Hennington explained the predicament the company was in and how it chose to handle it during the earnings call.

"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 estimate, 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.

Basically, the chain had to decide what items to hold onto and which ones to markdown so they would sell through faster.

"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 knowing 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."

Lower margins are a negative in the short-term but Hennington sees a silver lining.

"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 said.

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