Why The Recent Target Inventory Fiasco Isn't That Serious

Retailers are starting to see a shift in consumer spending as inflation drives up the cost of living for most Americans. Companies like Target and Walmart have been left struggling as the cooling effect of inflation leaves them with overstocked inventories (via Bloomberg).

When the COVID-19 pandemic hit the U.S., it caused countless businesses and manufacturers to shut down and severely disrupted the economy (via New York Times). Americans were saving money from experiences, services, and dining out, and also receiving stimulus money to encourage their spending. And there was plenty of spending going on. In 2021, houses were spending an average 17 days on the market — compared to 38 in 2019 – before selling (via National Association of Realtors), workout gear like Peloton bikes were on wait lists for months (via Pelo Buddy), and the supply chain wasn't able to keep up with it all. Now, we're seeing record high gas and food prices, which is shifting the average consumer's priorities away from goods and services and back to the basic cost of living.

In May, U.S. retailers saw their biggest single day stock market decline since the 1987 stock market crash (via Reuters) — but there are still signs that the inventory crisis isn't as bad as it seems.

Other retailers are not as overstocked

According to Bloomberg, the Target inventory crisis is no reason to fret over the state of the economy. They note that sales are still strong, even as inventories rose by $343 billion in the last two quarters. The inflation-adjusted retail inventory-sales ratio in March marked a high for the year, but it remains well below the average since 2012. The inventory of unsold finished durable goods is also at its lowest point since 2013.

What this means is that while major retailers like Target and Walmart stocked up on their orders to ensure they could meet demand, most other retailers aren't at that level. Bloomberg notes that many suppliers are still struggling to meet demand for a large portion of their customers.

The news of Target's overstocked inventory could even be a welcome sign for some who are trying to watch their spending. After their disappointing quarterly profits were made public, Target announced it would be lowering prices in the second quarter (via Reuters).