Minneapolis-based Target Corporation has reported solid sales for the fiscal second quarter but its profits plunged nearly 90% because it slashed prices to clear inventories of clothing, home goods and other discretionary items.
The weaker-than-expected profit came two months after Target warned it was canceling orders from suppliers and aggressively discounting because of a pronounced spending shift by Americans that left the Minneapolis-based discounter with bloated inventory.
Like many retailers, Target has been blindsided by consumers' lightening-speed switch from spending on pandemic-inspired home items, like TVs and small kitchen appliances, to investing on experiences.
In the first quarter, Target's profits tumbled 52% compared to the year-ago period. Moreover, surging inflation is forcing shoppers to focus on basic necessities.
Walmart, the nation's largest retailer, reported Tuesday that its sales and profits for the second quarter rose, saying higher-income shoppers were flocking to the discounter to save money on groceries.
Ted Rossman from Bankrate says this is showing a larget shift in the economy.
"Everybody's worried about inflation, everybody's changing their behavior as a result," Rossman told WCCO's Vineeta Sawkar. "I think there are winners and losers in that. People are definitely choosing to shop at more discount retailers like Walmart, Dollar Store. Places like that are actually picking up market share."
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Rossman does add that the supply chain issues are at least partly to blame for Target's struggles.
"The biggest thing weighing on a company like Target right now is the supply chain mess," Rossman says. "For a while it was hurting them because they couldn't get their hands on enough merchandise. Ironically, lately, it's kind of flipped. Now they're saying they have too much stuff in certain categories or it came in off-cycle. Retail's always a season ahead. If those summer clothes didn't arrive until the 4th of July, people maybe had what they needed for the season and you have to offer deep discounts."
Chairman and CEO of Target, Brian Cornell, said he is still pleased with the underlying performance of the company's business despite the downturn in the second quarter.
“I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June,” Cornell said in a statement. “While these inventory actions put significant pressure on our near-term profitability, we’re confident this was the right long-term decision in support of our guests, our team and our business. Looking ahead, the team is energized and ready to serve our guests in the back half of the year, with a safe, clean, uncluttered shopping experience, compelling value across every category, and a fresh assortment to serve our guests’ wants and needs.”
Shares fell more than 2% in premarket trading Wednesday. Cornell said the company is planning cautiously for the remainder of the year, including the critical holiday season. That will put a greater focus on stocking groceries and things like cosmetics.
Target had been the largest employer in downtown Minneapolis with 8,500 corporate workers according to the Minneapolis Downtown Council. Downsizing and moving employees to another campus in Brooklyn Park or Eagan, and allowing employers to work remotely, has reduced their downtown footprint. Target still employs around 12,000 people across the Twin Cities.
The Associated Press Contributed to this Story.
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