Discover more from Rational Exuberance
Target has a problem beyond slowing economy
The retailer said that theft and "organized retail crime" are having an impact on sales as inventories shrink.
Target, like many retailers, is warning of sluggish consumer demand. Inflation has taken a bite out of sales. Growth was tepid in the first quarter and the company warned that “softening sales trends” could lead to a decline in comparable sales (results at stores open at least a year) in the second quarter. CEO Brian Cornell noted that Target is “clear-eyed about the challenges consumers are facing.”
But Target has a bigger issue — and no, I’m not referring to the #BoycottTarget trend on Twitter, where some consumers are apparently upset about how they think Target is another liberal company that is pushing supposedly woke messages at its stores. Target’s more serious concern is that lots of people are stealing stuff. (Cue the Jane’s Addiction.)
Target said in its earnings report Wednesday that “inventory shrink” will lead to about a $500 million hit to profits this year. Profits. Not sales. That’s bad. Cornell noted that “theft and organized retail crime are increasingly important drivers of the issue.”
Target is, according to Cornell, “making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team.” He added that Target is “focused on managing the financial impact on our business so we can continue to keep our stores open.” That’s a somewhat alarming comment. Cornell seems to be suggesting that if the stolen goods problem doesn’t get resolved, some locations may need to be shut down.
Investors seemed to take the news in stride though. Target’s stock was up about 2% Wednesday, probably in part due to the fact that earnings still managed to top forecasts. But make no mistake. Target’s dire warning about crime, combined with the weaker demand that Home Depot hinted at on Tuesday, shouldn’t inspire confidence about the economy. (Or the state of American society for that matter.) Wall Street may be missing the mark by pushing Target shares higher.
Thanks for reading Rational Exuberance! Subscribe for free to receive new posts and support my work.