Target puts pressure on suppliers as stocks build up

Behind the scenes, 11 Target sellers told Reuters that Target had put pressure on its sellers this summer, among other things, by requiring them to pay the freight bill and asking some to keep more goods in their warehouses. Six of the merchants said Target’s recent actions are raising spending and shrinking profit margins at a time when Target wants to free up money to restock its stores while consumers prepare for “back to school” shopping. Specifically, Target has told some sellers that it will stop shipping some merchandise they make in China and instead order the same merchandise from its US warehouses, raising sellers’ costs, two sellers told Reuters. Two other sellers said Target has asked them to keep some inventory in their own warehouse, and to forward merchandise to Target only as needed. Carly McGuinness, president of Exploding Kittens, Inc, which makes card games in China that sells to Target, said Target has asked it to ship its toys directly to Target’s distribution centers from its US warehouses this summer. Since Target used to pick up toys directly in China, the change increases transportation and warehousing costs for Exploding Kittens, it said.

“We have to rein in some requests” in China, she said. “We now have inventory in China that Target doesn’t need. So we’re moving this stuff to the US and we have to use our own shipping,” she said, which comes at the expense of margins.

Target’s moves could be a harbinger of pain for some of the millions of small and medium-sized general-goods suppliers whose products are on retail shelves. General store inventories rose 31.3% to $104.65 billion at the end of April, the highest level since at least 2000, according to preliminary estimates by the US Census Bureau.

A spokesperson for Target said it “maintains open and transparent discussions with our trading partners,” but declined to comment on Exploding Kittens. Target also said in a blog post in June that it will cancel orders, work with merchants to shorten lead times and ask them to help offset inflationary pressures.

Target certainly gets goods from thousands of suppliers, analysts say. The 11 who spoke to Reuters sell everything from food to children’s clothing and toys, although they are a small sample.

(Graphic: Rising US retail inventory tracks the rise in consumer prices – https://fingfx.thomsonreuters.com/gfx/mkt/mypmnlbmqvr/Target%20graphic.PNG)

Rival Walmart will start charging some of its suppliers for new fuel and pickup fees for moving goods to its warehouses and stores in August, according to a memo seen by Reuters.

The supplier told Reuters that Walmart recently asked a supplier to keep unsold supplies on its premises. The seller said the company told another company that it would limit the amount of merchandise Walmart buys in China and brings to the United States.

Walmart declined to discuss the details of its supplier agreements. In May, Walmart said it owns more than $61 billion in goods, a fifth of which is discretionary goods that its US CEO said in June she wished she had never had. Isaac Larian, president of Los Angeles-based game maker MGA Entertainment, which sells to Target and Walmart, said major retail customers have reduced shipments they pick up in China. He said the change in orders, along with rising costs for raw materials and fuel, has driven up production costs by as much as 23% for things like baby and teen dolls.

Pete Maldonado, CEO of beef maker Chomps, said Target has asked his company to cut back on its products to focus on caps like original beef jerky.

“They are definitely more selective than previous years,” Maldonado said.