Target, Walmart, Macy’s, Macy’s, and Kohl’s have all recently announced that they will cancel some orders to balance inventory levels. This is a repeat of a strategy that was used during the pandemic.
As spending has slowed in certain non-discretionary categories, retailers are also using markdowns to clear inventory and packing away products for next year. Intentional overbuying is also a factor in the high inventory levels. This is to reduce supply chain constraints and prevent shortages.
There are two possible outcomes to canceling orders: it can strain or damage relationships with trading partners. Many retailers were criticized for failing to honor their payments for goods in production, as well as requests for postponements, discounts, or delays in payment. Many issued statements confirming their commitments. Gap and Levi are offered low-cost financing for factories in order to weather delays in payment.
Another risk is not having enough inventory available to meet demand. Many brands and retailers indicated that they missed sales opportunities in 2020 due to inadequate inventory. Demand recovered faster than expected, so there was an overly-lean inventory problem.
Retailers were alerted to potential inventory shortage risks by taking overly aggressive measures in the second quarter of analyst calls
Christina Henington, Target’s EVP/chief growth officer, stated that Target’s buying team is “rigorously reframing its expectations for the remainder of the year and beyond, and determining where future receipts or orders can be reduced.” It meant, in some cases working with vendors to lower our fall receipts according to our revised expectations. It meant creating compelling promotional plans quickly to increase unit velocity for products we already owned. All with a focus on providing great value and sparking excitement for our guests.
John David Rainey, Walmart’s EVP/CFO, stated that it had cleared all summer inventory, was reducing its exposure in electronics and home, and canceled “billions in orders” in order to realign inventories. He stated, “Our actions of Q3 will allow for us to make significant advances toward rationalizing absolute level and mix, which should enable our stores to be well-positioned ahead of the holiday season.”