Giant US retailer Target was able through lean stock levels and a faster supply chain to help the retailer chase faster-moving goods and keep replenishing them on its shelves. In so doing their inventories were down 14% in Q3 while profits expanded significantly.
Inventories were down 14% YoY, with inventories in discretionary categories down even more, at 19%. As Target heads into the holiday selling season, CEO Brian Cornell said the retailer was sticking to its conservative inventory position on “markdown-sensitive” categories.
“This provides our team the necessary flexibility to adjust to volatile trends, something that has served us well all year. That does not mean we’re backing off a newness. While we’re cautious about the size or inventory commitment, we’re leaning into the amount of innovation featured in our assortment.” - Target CEO Brian Cornell
“After the onset of the pandemic, we couldn’t secure enough inventory to satisfy the explosion in demand for our products. Then in early 2022, the period of rapid growth in discretionary categories suddenly reversed. We quickly moved from having too little inventory to have way too much.” - Outgoing Target COO John Mulligan
Operating margins hit historic lows last year as Target’s distribution centers and store backrooms filled up “well beyond optimal levels,” Mulligan noted.
But after taking dramatic measures to clear inventory through 2022, Target is operating more smoothly. In Q3, the company made nearly $300 million more in operating profit compared to last year even as its top-line sales declined by more than $1 billion.
Target’s operations and supply chain have also helped the retailer meet demand when it surfaces. Even with less inventory, “the team has delivered meaningfully improved reliability and in-stock metrics this year,” Mulligan said, noting that overall in-stocks were up by nearly 1 percentage point from Q2 and up 3 percentage points YoY.
“With a combined benefit of a faster supply chain and a simultaneous reduction in inventory levels, all of our supply chain facilities stayed at or below our desired capacity thresholds to all 13 weeks of the third quarter of this year, compared with only three of 13 weeks in Q3 of 2022,” - Outgoing Target COO John Mulligan
This echoes Reggie Twigg from Anaplan and Niklas Hedin from Centiro in this interview and this interview respectively, with Supplychainbrain, saying that the supply chain can be the lever by which companies drive growth and profit.
Sources: Supplychaindive and Supplychainbrain
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