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"Target Reports Major Losses As Retail
Industry Headed For A Dark Winter"
by Epic Economist
"Target’s supply chain problems should be a major red flag for all U.S. retailers. The company’s latest warning about profits for the final quarter of 2022 is triggering major repercussions across the entire sector and prompting shares of several popular retailers to crash as investors fear that a flood of disappointing results is coming even as we enter the busiest shopping season of the year. At this point, most consumers are overwhelmed by higher prices in all spending categories, and they’ve been changing the way they shop to adjust to a reality of lower buying power as inflation continues to squeeze the budgets of many. But that shift has sparked a ripple effect that is severely hurting retailers’ bottom lines, and a weaker-than-expected Black Friday is adding to their financial setbacks. The shock has been so extreme that now the retail titan is in big trouble, and that’s after it had already faced a 90% profit loss in the second quarter. The outlook for Target is disturbingly gloomy, and given that many of its industry peers are facing a similar situation, soon we might see an avalanche of collapsing retailers as the U.S. economy breaks down all around us.
Target’s lopsided supply chains and its continuous logistics imbalances have resulted in what retail experts have called “the worst train-wreck profit outlook of the year”. Since the pandemic broke out, the retailer has been facing a series of problems with its inventory levels. Shoppers were not interested in the items they had on their shelves, and inventory wasn’t moving at all. It didn’t help that their total inventory volume had increased by over 40%. By mid-spring, it was imperative for the company to get rid of these products to be able to empty its warehouses and bring in products consumers actually wanted to buy. Their only alternative was to slash prices on all of these goods and take on a profit hit of 90%.
When you’re one of America’s biggest retailers, seeing your inventory lose 90% of its value is undoubtedly dangerous for your business. At that time, many retailers, including Amazon, Home Depot, Costco, Walgreens, Best Buy, and Dollar General were in a disturbingly similar situation. However, right now, the outlook has gone from ugly to downright horrifying as Target reports another blow on its earnings for the third quarter and issues a dire warning for profits in the fourth and final quarter of 2022. Reporting a 52% profit loss in Q3, the retailer is still holding an excessive amount of inventory even after offering deep discounts and at a time the whole sector is facing a slowdown in consumer spending. Altogether, Target has faced a 193% profit loss so far this year.
In face of these mind-blowing numbers, there’s no wonder why Wall Street analysts and many other retail companies are sitting on the edge of their seats this holiday season. Target’s bleak prediction for the weeks ahead also took down other major retailers' stock values. Macy's lost 8.1%, Best Buy dropped 8.6%, and Advance Auto Parts fell 15.1%. Investors are afraid that a flood of collapsing earnings will mark this year’s holiday shopping season.
If their forecasts come to fruition, that will be the worst holiday shopping season since the global financial crisis. With thousands of retailers around the U.S. struggling financially, a bleak holiday season is likely to accelerate their demise. We may be headed to a new year of mass retail layoffs, store closures, and bankruptcies. The numbers do not look good. The feeling of dread seems to be spreading across every sector. A major shift has begun. And it looks like it’s all downhill from here."