Clothes are cheaper! Food is more expensive! Big retail stores inventory problem!

 

Earnings for Aisle 5... America's most popular retailer is expected to report this week, and what looks to be a tough quarter

Walmart and Target

.High food and gas prices are pushing Americans to cut back on discretionary spending (think: TVs, bikes, air fryers). Retailers now have billions of unsold inventory (Photo: Hoodie Hill).

Walmart cuts annual profit forecast in July

laid off

 Hundreds of company employees this month. The largest U.S. retailer missed its first-quarter profit forecast, sending its shares up 33% from last year. The final quarter could be even worse.

Target issued a profit warning in June, saying earnings would take a near-term hit as it cancels orders and slashes prices to get rid of inventory. Target stunned investors in the first quarter as consumers ditched buying more expensive items.

Ignore throw pillows... put your back on the pajama hanger. Like Target, Walmart has been running discount deals to offload items like gym clothes, patio furniture and blenders. These are the hot items during the pandemic, but consumers are avoiding them right now:

Clothes and food rise: Inflation slowed last month, but food prices continued to rise since June, and consumer confidence hit a new low in July.

Not Saved by Chili: Grocery accounts for more than half of Walmart's (and a large portion of Target's) sales, but they're not as profitable as clothing and electronics.

takeout

Laggards are costly... It's not just inflation that affects profits: retailers have too many wrong products and too few right ones.

Hole

 There are piles of unsold hoodies and leggings, while customers want cocktail dresses and office blazers. By taking quick action to get rid of unwanted items, retailers can make room for products that customers really want (eg: groceries, school supplies). But (as Target's CEO puts it) could take a few quarters -- and that's hurting profits right now.

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