Sep 14, 2022
Walmart, Target, Macy’s and Kohl’s are among the retailers that recently said they were cancel some orders to better balance stock levels, review of a strategy used at the start of the pandemic.
Other steps retailers are using to eliminate inventory as spending has slowed in some non-discretionary categories are using markdowns and packaging products for the following year. High inventory levels also reflect intentional over-purchasing to ease shortages and the easing of supply chain constraints.
One of the risks of canceling orders is straining or damaging relationships with business partners. After the pandemic hit, many retailers were called in to failing to honor their contracts for full payment of goods that were in production as well as requests for postponement, remission or late payment. Several issued statements guaranteeing their commitments, with Levi’s and Gap offering low-cost financing to factories to deal with late payments.
The other risk is not having enough inventory to meet demand. Many retailers and brands have indicated that they lack selling opportunities during the 2020 holiday season due to low inventory as demand picked up faster than expected.
Second-quarter analyst calls revealed that retailers were aware of the potential risks of inventory shortages resulting from overly aggressive actions.
Christina Hennington, Executive Vice President and Chief Growth Officer of Target, said taken measures by the discounter’s buying team include “rigorous re-forecasting of expectations for the remainder of the year and beyond and determining where to cut revenue and future orders.” In some cases, this has meant working with supplier partners to reduce our fall revenue in light of our updated expectations. It also meant quickly developing compelling promotional plans to increase unit velocity for products we already owned, all with the goal of delivering great value and generating excitement for our customers.
John David Rainey, executive vice president and chief financial officer of Walmart, said he had emptied most of the summer stock, was cutting its exposure to electronics, home and sporting goods, and canceling “billions of dollars in orders” to realign inventory. He said: “Our actions in the third quarter will allow us to make significant progress towards streamlining absolute levels and mix, which will allow our stores to be well positioned ahead of the holiday season.”
DISCUSSION QUESTIONS: Should we Are order cancellations a rare, last resort option or are they regularly used as a tool for inventory rebalancing? What lessons, if any, should order cancellations at the start of the pandemic offer?
“Using continuous and collaborative forecasting methods can help retailers avoid having to cancel orders and disrupt suppliers.”