Supply chain issues and port congestion have been major themes this retail earnings season. Target and Walmart both said this week that they are working on solutions to strongly position them for success in the second half of 2021.
Both Target and Walmart beat expectations in their Q2 earnings results this week. Target reported a second quarter total revenue of $25.2 billion, with a growth of 9.5% compared to last year. Walmart’s total revenue was $141.0 billion, up 2.4%.
The success of the big-box retailers occurred amid a period of general consumer instability. Overall, retail sales slumped 1.1% in July from June, at $617.7 billion. The dip was, in part, due to concerns surrounding the Delta variant as well as port congestion and shipping disruptions. Freight rates have reached record highs amid pandemic-related shipping slowdowns, factory and store shutdowns, clogged ports and worker shortages. As a result, prices on certain items have increased during the crucial back-to-school and holiday seasons.
For Target and Walmart, certain strategies have mitigated the impact of global supply chain slowdowns. In their Q2 earning reports this week, both big-box retailers maintained confidence in their abilities to manage stock and meet demand during the upcoming holiday season.
Both Target and Walmart ended Q2 with inventory levels up 20% year over year.
“We are learning very quickly how to use our supply chain assets, including local assets, upstream assets, distribution assets very dynamically to be able to move product and assemble orders in a way that is most efficient to meet the customer promise,” Walmart U.S. EVP, CEO and president John Furner said in a Tuesday call with investors.
To prioritize the upcoming holiday season, Walmart is securing supply early and chartering vessels to prepare for Q3 and Q4.
To address supply chain bottlenecks, Target has expedited ordering and pivoted to ordering larger quantities upfront in advance of a season to allow for more time for freight to get to stores.
In a Wednesday call, Target CEO and chairman Brian Cornell said that the company’s supply chain setup, which positions its stores as fulfillment hubs, was a major performance driver for the company this quarter.
“We have more work to do as our guests are still seeing empty shelves on some occasions,” said Target EVP and COO John Mulligan. “In some of those situations, we’ve simply sold beyond our expectations, and our team is working quickly to secure additional quantities. In other cases, the vendors themselves are facing constraints in their ability to deliver product. And we’re collaborating with them to address these constraints together, securing as much product as possible on behalf of our guests.”
In an interview with CNBC, Cornell said he is in confident that Target will deliver on merchandise this holiday season.
“We’re getting access to that inventory, and our stores are at this point ready for the school season, the college season … and we’ll be ready for the holidays,” Cornell told CNBC. “We have a lot of inventory flowing our way right now.”