Overstock clearance sale for one year! 2023Target persists in a low inventory strategy!

1-year overstock clearance sale! 2023Target maintains low inventory strategy

BusinessDialogue has learned that due to a 16% year-on-year decline in inventory by the end of the first quarter, Target is still pursuing a lean inventory strategy, as it has withstood the persistent fluctuations in consumer spending this year.

During a conference call with analysts last week, Target executives described the retailer’s inventory situation as “conservative” and “cautious.” Prior to this, the CEO of the retailer, Brian Cornell, stated that spending in March and April was “further weak.”

While Chief Operating Officer John Mulligan remained cautious, he said the retailer has been making “purposeful inventory investments” in high-frequency categories and said, “Given the rapid growth we’re seeing, it’s important to ensure we have inventory.”

This time last year, Target and many of its retail peers, including retail giant Walmart, were caught in an inventory buildup when spending on non-essential items suddenly plummeted.

Target cleared store space with price promotions and updated its merchandise, a process that lasted a full year and caused painful hits to the company’s profit margins and profits.

But the end result is exactly what Target was looking for: lower inventory levels. According to executives, inventory in non-essential categories fell 25% in the first quarter of this year compared to the same period last year.

Mulligan said the year-on-year decline in inventory is the result of Target’s “cautious stance” today and the impact of excess inventory on last year’s balance sheet. Mulligan also noted that without Target’s increased high-performance inventory, the decline would have been even greater.

Less inventory and higher inventory efficiency means more cash.

According to CFO Michael Fiddelke, although the company’s operating profit was slightly lower than last year, Target generated $1.3 billion in cash in the first quarter, while last year’s operations “absorbed $1.4 billion.” He told analysts that the difference in cash generated in the first quarter of 2023 was “almost entirely due to changes in our inventory investments compared to last year.”

The financial manager stated that Target’s more conservative stance “gave us flexibility and agility,” while Cornell stated that it “allowed us to bring freshness to our product portfolio.” Fiddelke also pointed out that “you will continue to see us maintain this posture for the remainder of this year.”

BusinessDialogue understands that while striving to keep current levels in line with sales, Target has also been striving to improve the efficiency of its inventory replenishment system, with Mulligan describing this investment process as a modernization “journey of many years.”

“When I entered this position eight years ago, store inventory replenishment was a standardized and rigid process that placed a heavy burden on our store team members,” Mulligan said. “Through this modernization effort, our primary goal is to reduce the labor demand on our stores.”

He added that the company achieved this by establishing processes, technology, and automation in distribution centers, which in turn increased labor efficiency.

Editor ✎Estella/AMZ123

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