Target puts pressure on suppliers as inventory piles up

Behind the scenes, Target pressured its sellers this summer by, among other things, asking them to foot the freight bill and demanding that some keep more goods in their own warehouses, 11 Target sellers told Reuters . Six of the merchants said Target’s recent moves were increasing spending and squeezing profit margins at a time when Target wanted to free up cash to restock its stores as consumers geared up for “back to school” shopping. Specifically, Target told some sellers it would stop shipping some of the products they make in China and instead order the same products from their U.S. warehouses, which would drive up costs for sellers, they said. two sellers told Reuters. Two other sellers said Target instructed them to keep inventory in their own warehouses and only forward goods to Target when needed. Carly McGinnis, president of Exploding Kittens, Inc, which makes card games in China that are sold to Target, said Target asked her to ship her games directly to Target’s distribution centers from its US warehouses this summer. . Because Target was picking up the games directly from China, the change increases Exploding Kittens’ shipping and storage costs, she said.

“We have to hold back some orders” in China, she said. “We now have inventory in China that Target doesn’t need, so we move those products to the United States and have to use our own freight,” which comes at the expense of margins, she said.

Target’s moves could be a harbinger of pain for some of the millions of small and medium-sized general goods suppliers whose products are on retail shelves. Department store inventories rose 31.3% to $104.65 billion at the end of April, the highest level since at least 2000, according to preliminary estimates from the US Census Bureau.

A Target spokesperson said it was “maintaining open and transparent discussions with our merchant partners,” but declined to comment on Exploding Kittens. Target also said in its June blog post that it would cancel orders, work with merchants to shorten lead times and ask them to help offset inflationary pressures.

Granted, Target sources from thousands of vendors, analysts say. The 11 who spoke to Reuters sell everything from food to children’s clothing and toys, although they are just a small sample.

(GRAPHIC: U.S. retail inventory surge tracks rising consumer goods prices – https://fingfx.thomsonreuters.com/gfx/mkt/mypmnlbmqvr/Target%20graphic.PNG)

Rival Walmart will begin charging some of its suppliers new fuel and pickup fees for transporting goods to its warehouses and stores in August, according to a memo seen by Reuters.

Walmart also recently asked a supplier to keep unsold items on its own premises, the supplier told Reuters. He told another he would limit the amount of his goods Walmart picks up from China and brings to the United States, the seller said.

Walmart declined to discuss details of its agreements with its suppliers. In May, Walmart said it was sitting on more than $61 billion in assets, a fifth of which are discretionary assets that its U.S. CEO said in June he wished he never had. Isaac Larian, director of Los Angeles-based toymaker MGA Entertainment, which sells to Target and Walmart, said its major retail customers had reduced the shipments they were picking up in China. He said surging orders, combined with soaring raw material and fuel costs, have driven production costs up to 23% for things like baby and teen dolls.

Pete Maldonado, general manager of beef jerky maker Chomps, said Target had asked his company to scale back its products to focus on toppers like its “Original Beef” jerky.

“They’re definitely more selective than previous years,” Maldonado said.