In the retail industry, the first quarter of the year is a busy time. From restocking after the holiday season, to preparing for Valentine’s Day specials — there is a lot to be done. Additionally, stores tend to use this time to analyze sales patterns from the previous quarter, identify what works, what was not well received, and so on. This data will then set the tone for the plan of action going forward. The easiest way to identify any of these patterns or losses is through earnings — which also gives investors and analysts alike, a good overview of the company.
Target, the popular retail chain, along with its peer Walmart, have already shared an early glimpse of the state of their respective companies. Both of the big box chains have reported that the holiday period surpassed their expectations and both are predicting to see positive numbers as the year progress. Official earning reports haven not yet been released, however.
The current state of retail
During the third quarter earnings call, Target CEO, Brian Cornell shared, “Consumers tell us their budgets are being stretched. They’re becoming resourceful, focusing on deals, then stocking up when they find them. Consumers allow themselves to splurge a little bit when they find the right item.”
Despite this tightening of budgets, most of the bigger retailers across the country are reported to have had a profitable holiday season.
Walmart recorded an especially high return from holiday sales leading to the lifting of its sales guidance for the fiscal year of 2025. Net sales, operating income, and earnings per share will all be lifted for the progressing year.
Target hit the mark for record sales during the recent holiday period and also made the decision to lift its sales guidance. The retailer foresees an increase of 1.5% in comparable store sales for the fourth quarter.
Amidst this bout of good business, most retailers are still struggling with the stubborn problem of inventory shrink. Shrinkage can be defined as the missing difference noted when comparing inventory recorded on the balance sheet and inventory that is physically on the shelves. This occurs for a multitude of reasons including theft, damage, administrative errors, etc.
Policy change at Target not well received
Inventory shrink, along with other retail crimes, appear to be a persisting problem across all stores in the retail industry lately, leaving companies no choice but to get creative with their methods of containing the problem.
Various approaches have been taken by various stores to combat this — some more strict than others. Certain stores are taking a rather extreme approach by requiring customers to provide a receipt or some sort of identifying factor to gain entrance or exit the store.
Other stores have increased the number of security guards posted at entry points. Self checkout counters are also being eliminated entirely or the quantity of available counters are being scaled down. Another preventative measure taken by retailers is by locking up inventory and this is especially disliked by consumers, likely due the extra inconvenience of having to find a floor worker to open the case if you need the secured product.
These measures only combat the issue of thievery at checkout, leaving the returns process highly susceptible to fraudulent schemes.
To aid this potential trouble, Target will be implementing a big change to its return policy. The retailer has shared that it now “reserves the right to refuse returns, refunds, and exchanges, including but not limited to prevent fraud, suspected fraud or abuse.”
The new policy dictates that “items that are opened or damaged or do not have a receipt may be denied a refund or exchange. In-store returns without an eligible receipt will be denied. Some items, such as electronics, may have a shorter return window.”
The 90-day return period will still be honored on items that are returned undamaged, however.