Target puts the squeeze on suppliers after inventories pile up

Target Chief Executive Brian Cornell pledged in a June blog post that the retailer would take necessary actions to adapt to a post-pandemic landscape, paring a record $15.1 billion in unsold merchandise.

Behind the scenes, Target's actions this summer include putting pressure on its vendors, asking them to pick up the tab for transporting goods and requiring some to retain more merchandise at their own warehouses, 11 Target vendors told Reuters.

Some said Target's recent moves drive up their expenses and squeeze their profit margins at a time when Target wants to free up cash in order to restock its stores as consumers gear up for back-to-school shopping.

Specifically, Target told some vendors it will cease transporting some merchandise they manufacture in China, instead ordering the same goods from their U.S. warehouses, adding to vendors' costs. Others said Target asked them to hold some inventories in their own warehouses, forwarding the goods to Target only on an as-needed basis.

Carly McGinnis, president of Exploding Kittens Inc., which makes card games in China sold at Target, said Target asked it to send its games directly to Target's distribution centers from its U.S. warehouses this summer. Because Target previously would pick up the games directly in China, the change adds to Exploding Kittens' transportation and storage costs, she said. The changes are eating into the company's margins.

Target's moves could be an early harbinger of pain for some of the millions of small and midsize general-merchandise suppliers whose products sit on retail shelves. Inventories at general-merchandise stores rose 31.3% to reach $104.7 billion as of the end of April, the highest level since at least 2000, according to preliminary estimates from the U.S. Census Bureau.

A Target spokesperson said it "maintained open and transparent conversations with our vendor partners," but declined to comment on Exploding Kittens. Target also said in the June blog post that it would cancel orders, work with vendors to shorten lead times and ask them to help offset inflationary pressures.

To be sure, Target secures merchandise from thousands of suppliers, analysts say. The 11 who spoke with Reuters sell everything from food, to children's clothing and toys, although they represent a small sample.

Rival Walmart in August will begin to charge some of its suppliers new fuel and pickup fees to transport goods to its warehouses and stores, according to a memo seen by Reuters. Vendors also said the retailer told them they would be scaling back inventory shipped from China.

Walmart declined to discuss the details of its supplier agreements.

Isaac Larian, chief executive of Los-Angeles-based toy maker MGA Entertainment, which sells to Target and Walmart, said its major retail customers have reduced the shipments they pick up in China.

He said the change in orders, coupled with spiking costs of raw materials and fuel, have increased the cost of producing products by as much as 23% for baby and teenage dolls, for instance.