After what seemed like good times, the retail industry is facing an unprecedented problem that is starting to eat away at their profits. Due to stimulus and a solid economic recovery, consumer spending continued to rise as citizens spent their money on goods like cars and technology, with luxury items having a nice run too. Fast forward a few months, and household budgets have adjusted to comply with the current economic conditions. Inflation is running rampant, and things like gas expenses have skyrocketed due to rising prices.
As a result, the world of retail has recoiled from the rapid change in consumer behavior. For department stores like Macy’s and Kohl’s, inventory is exceeding the number of sales, with former top sellers staying on the shelves while other items are sold out. This is forcing them to mark down these goods that aren’t selling anymore, reducing profit margins and negatively impacting earnings. Now, this change is starting to affect your go-to retail companies as indicated by Target. On Tuesday morning, Target issued a profit warning while slashing their guidance as a result of rising inventory levels that aren’t amounting to sales. The company is now looking to cancel orders with its vendors while giving discounts on items stuck in the shelves, and it sent their stock price falling further just weeks after disappointing earnings. For months, the United States has experienced elevated levels of consumer demand, leading to limited supply and acceptable price increases. Now, things look like they took a complete 180, and it will come to show as the retail industry is soon to report their second batch of earnings for the fiscal year.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.