Amid Target’s inventory woes, inflationary pressures test markdown abilities

Amid ongoing inventory issues, including a rise in out-of-stock SKUs, Target announced it would be right-sizing its inventory by implementing additional markdowns, removing excess inventory, and canceling orders. This is the latest in an effort to correct the mismatch between supply and demand—a wider issue currently affecting many other large consumer clothing brands. 

Using Earnest’s Retail Pricing data, we found that discounting at Target has already been at depressed levels (no doubt caused at least partially by inflationary pressures). The total percentage of all merchandise discounted* was at 3% as of May ‘22, compared to 7% a year ago and 12% in the fall of 2019. Therefore, it seems likely that any discounting measures Target rolls out now would serve as a three-year trend-reversal and a correction back to “normal” (ie: non-inflationary) past rates—to the extent that is possible amid their own rising costs of goods and supplies. 

Breaking down discounting by categories paints a more nuanced picture, however. The press release suggested less right-sizing among frequently shopped for categories like Food and Household Essentials vs. with more discretionary categories like Home. Looking at the data by category reveals that discounting levels were always low within Food and Household Essentials, and actually turned negative—with Food showing the sharpest drop—since the beginning of the year. Further, discounting trends within Home have also been steadily decreasing over the last 3 years, from a high of 15% in 2019 to now 3% in May ‘22; thus, any strategy to increase Home markdowns would indeed also serve as a dramatic trend-reversal. On the other hand, Electronics (not mentioned in the press release) has always had the highest discounting, and at a relatively steady 12% rate over the past three years. It is therefore curious if Target will also choose to add further Electronics markdowns amid its current inventory woes. 

We will continue to monitor how the convergence of inflation and inventory trends manifest for Target and other consumer brands within our Retail Pricing dataset. 

Notes: *Total % Merchandise Discount measures the overall level of discounting across the merchandise (including both full-price items and on-sale items). The calculation measures the percent change between the current price vs. its original price; ‘original’ defined as its price when it first entered the dataset.