14 Sep 2022
Walmart, Target, Macy’s and Kohl’s are among the retailers that have recently said they are cancel some orders to better balance inventory levels, a repeat of a strategy used at the start of the pandemic.
Other steps retailers are using to clear inventory as spending has slowed for some non-discretionary categories include price cuts and packing products for the following year. The increased inventory levels also reflect intentional over-buying to reduce shortages and the easing of the restrictions in the supply chain.
A risk of canceling orders is straining or damaging relationships with trading partners. After the pandemic broke out, many retailers were called for failure to fulfill their contracts to pay in full for goods that were in production, as well as requests for delays, discounts or delays in payment. Several statements issued their pledges, with Levi’s and Gap offering cheap financing to factories to get through payment arrears.
The other risk is that there is insufficient inventory to meet demand. Many retailers and brands indicated that they missed sales opportunities during the 2020 holiday season due to understocks as demand recovered faster than expected.
Analyst calls in the second quarter revealed that retailers were aware of potential inventory shortage risks from overly aggressive actions.
Christina Hennington, EVP and Chief Growth Officer of Target, said: steps being taken by the discounter’s purchasing team include “strictly re-forecasting expectations for the remainder of the year and beyond and determining where to reduce future receipts and orders. In some cases, it meant working with supplier partners to reduce our fall receipts in light of our updated expectations. It also meant we had to quickly create compelling promotional plans to increase unit speed for products we already owned, all with a focus on providing great value and generating excitement for our guests.”
John David Rainey, Walmart’s EVP and CFO, said it… cleared most summer stock, reduced exposure to electronics, household goods and sporting goods, and canceled “billions of dollars worth of orders” to rebalance inventories. He said: “Our actions in the third quarter will allow us to make significant progress in rationalizing absolute levels and mix, which will allow our stores to be well positioned for the holiday season.”
DISCUSSION QUESTIONS: Should canceling an order is a rare, last resort or is regularly used as a tool to rebalance inventories? What lessons should any order cancellations at the start of the pandemic provide?
“By using continuous, collaborative forecasting methods, retailers can avoid having to cancel orders and disrupt suppliers.”