Target is the latest major retailer to send shock waves through the market by announcing it would begin a massive surplus inventory cleanup through deep discounting, canceled orders and a sharper focus on high-turn items heading into a back half facing tempered sales expectations.
Stress about clogged supply chains seemingly overnight has turned into frayed nerves about oversupply by retailers who loaded up before runaway inflation slammed the breaks on spending already slowing from its mid-pandemic peak.
It does seem that every time a hurdle is cleared, another pops up. And yes, it is unnerving when major retailers pull the plug on orders after a couple of years during which the same retailers couldn’t keep much of what they got their hands on in stock.
That is yet another example, however, of the constant interplay among retail financial, operating and merchandising departments to fashion the most productive programs on selling platforms and on balance sheets.
Vendors have lamented in recent years how accountants now run the retail business instead of merchants. And how that often results in less-than-daring assortments, especially among physical retailing channels in which retailers must hold hard stock.
There may be reason to commiserate with such supplier sentiment. However, in an age when the consumer can discover, choose and purchase virtually everything they want on the Internet, it has become mainstream retailing’s very real burden to pull together differentiated, inviting merchandising and marketing programs without sacrificing financial and operational restraint necessary to sustain meaningful margins that keep the stores open.
The vendor side in recent years, after an e-commerce ascent accelerated even more during a business-altering pandemic, should by now appreciate more clearly the heightened value of a business plan built equally on financial and operational dexterity no matter how compelling and valuable a product might seem. Indeed, the product of such businesses is not simply the items they provide that end up in consumer homes. The product — what they should be selling to retailers — is a composite of constantly evolving and refined practices across all disciplines that enable the journey to those homes with enough to spare to keep doing it effectively and efficiently.
For retailers closing out goods and dropping orders: At some point, the defensive cost-cutting gets down to the bone. That’s when they should lean into creatively and decisively merchandising their way to renewed, profitable growth, aided by an astute eye for difference-making, right-priced (not just lowest-priced) merchandise gleaned from detailed commitment to learning what vendors have to offer; a sharp eye on fast-evolving consumer lifestyles and behavior; fluid technology implementation; and nimble operations through the last mile.
Face it, the open-to-buy days of retailers relying mainly on buyer intuition and relationships are long gone. That doesn’t mean many retailers wouldn’t benefit from empowering buyers and merchandise managers to push the envelope a bit more at a time when the risks of such instinct can be mitigated by a wide, deep reservoir of available market intelligence.
For suppliers unnerved about major retailers cutting inventory and orders, the reaction is understandable. But there is little to gain from commiserating about it. When the initial shock waves subside, resilient, progressive suppliers will figure out and execute — as they’ve done with previous hurdles to pop up — everything that is required of their businesses today to survive the cut.