Target’s lower profit came from the massive discounts it had to offer on many of its general merchandise, such as clothing, electronics and household goods. The damage to profits from such a profound opponent was inevitable. But company executives insist it was the right choice.
“Consider the alternative: We could have held the excess inventory and tried to handle it slowly, over several quarters or even years. While that might reduce the financial impact in the near term, it would have held back our business over time,” said CEO Brian. Cornell Investors. “The vast majority of the financial impact of these stock actions is now behind us.” pridect A significant improvement in operating margin rates in the autumn season.
Many analysts agree that Target did the right thing and took the hit. Many say the sudden shift in consumer buying habits was not due to management miscalculation.
“Over the past year the supply chain has been very tight,” said Bobby Griffin, retail analyst at Raymond James. “There were many items out of stock. They were ordering at a level of demand that was very reasonable.” “Then there was a very rapid change in consumer behavior.”
Griffin said consumers’ discretionary purchases have shifted away from merchandise to things like travel.
Other experts say Target Management hasn’t been entirely blameless for falling with so much wrong inventory.
“My feeling is that this [problem at Target] 70% was about consumer behavior and 30% was about stock miscalculation,” said Eric Schaeffer, chief investment officer at Los Angeles-based private equity firm The Patriarch Organization.
There is some hope for all retailers that they can take advantage of the significant and steady drop in gas prices over the past couple of months.
Target always had more problems with the sudden shift in consumer spending from Walmart. Walmart owns more than half of its sales from grocery while Target is approaching 20%, said Owen Chen, a retail analyst at Cowen. Walmart also had to deliver sales on its non-essential general merchandise in the quarter.
Walmart has always been competing more for lower prices, an advantage at a time when middle- and upper-income shoppers are concerned about higher prices. Walmart executives reported that they saw more business from those high-income families last quarter, a statement that delighted its investors.
But Chen said the numbers suggest they weren’t getting those high-income shoppers out of Target’s traditional customers.
“I think the goal [store] Traffic numbers show they have done a good job at holding on to their customers,” he said. The number of customers who made purchases at Target was up 2.7% year-over-year in the quarter just completed. That’s up 20% since the same period in 2019. , before the pandemic.
Target stocks have underperformed some of its competitors, down 28% so far this year, compared to just 5% down at Walmart. Schaefer said he wouldn’t be surprised to see Target’s stock continue to decline, because he believes it is overvalued by as much as 30%. But he does not think that this means that the target is in a bad position for the future.
“I’ll stay on the track,” he said. “The pace of growth during a pandemic will not be sustainable at all. It will continue to grow, but not at the same pace.”