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NEW YORK – Two leading US retailers have announced major cancellations of orders, including apparel, as they battle excess inventory. Target this week announced it had cancelled more than US$1.5bn worth of orders in Q2 to get a better handle on stock issues.

The business said it had cut its “inventory exposure in discretionary categories” throughout Q2 by cancelling more than US$1.5bn of orders in these categories as well as marking down products.

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Target CEO Brian Cornell said the company is now, “in a much better position” and the “vast majority of the financial impact” is now behind it,

Cornell told investors on a call: “We could have held on to excess inventory and attempted to deal with it slowly over multiple quarters or even years. While that might have reduced the near-term financial impact, it would have held back our business over time.”

The CFO of Walmart John Rainey also said this week the company had “canceled billions in orders” to manage with inventory pileups that have developed over the last few quarters across discretionary categories like apparel.

“We feel much better about the back half of the year,” said Walmart US CEO and president John Furner. “We still have the inventory to work through and ingest from the backlogs, as we said. So we need a couple of quarters to do that.”

News that Walmart and Target are both cancelling orders will send ripples through the broader retail space. Given that fashion is a discretionary spend, major fashion brands will be feeling particularly vulnerable right now. Boohoo and Asos look particularly vulnerable. Shares in both are down almost 80 per cent in the past 12-months.

Adding to the problems fashion brands face is that delays to orders earlier in the year – particularly from China where ports were inactive due to lockdowns – meant that backlogs of orders created inventory bottlenecks.

Meanwhile, consumers across the Western world are now facing a cost of living crisis thanks to the war in Ukraine which had led to soaring energy costs. This is causing huge increases to gas and electric bills for households.

In Germany and the UK, the cost of household energy is set to rocket this winter. Both countries are considering rationing energy in the coming months, and there is even talk of controlled ‘blackouts’.

We will be looking more at the implications of a global recession for fashion retailers in our next magazine.

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