What Can Retailers Learn from Target's Costly Markdowns and Order Cancellations?

What Target’s results actually say

Target’s second-quarter 2026 release describes an improvement against the previous year’s elevated markdowns and purchase order cancellation costs. Reported gross margin was 33.7%, including a 3.7 percentage-point benefit from tariff refunds. Excluding those refunds, gross margin expanded by approximately 100 basis points against the prior-year rate of 29.0%.

The release also identifies advertising and non-merchandise sales growth as contributors. Its accompanying earnings overview describes broader progress in the business. The comparison therefore concerns earlier costs, rather than evidence that the same pressure persisted in the current quarter. It does not isolate a dollar amount for markdowns or cancellations, identify the affected orders, or establish a single operational cause.

Source: Target’s official Q2 2026 earnings release.

A markdown and a cancelled order solve different problems

A markdown changes the selling-price assumption for stock a retailer expects to sell. A purchase order amendment changes a supply commitment only when the relevant parties authorise and confirm it. They belong in the same commercial discussion, but their costs and timing differ.

Discounting stock already held cannot remove an incoming order. Equally, asking a supplier to reduce an order does not change the quantity already available in stores. A buyer needs to see the current demand outlook, held stock and open commitments together before choosing a response.

Target’s comparison is a reason to examine that discipline. It is not evidence that Target used a particular planning process, nor that any one system would have prevented the earlier costs.

Start with Core: the budget is a buying assumption

Merchmix connects retail planning with operational decisions. Core is its planning product, bringing budgets, MFP/WSSI and open-to-buy into the merchandise discussion. MFP/WSSI connects the weekly sales, stock and intake plan; open-to-buy, or OTB, assesses the room for further buying against the chosen plan and its existing commitments.

A budget is more useful when the buyer can explain its units, selling prices, costs and time period. If demand changes, updating only the sales target leaves the intake assumption behind. In Core, the next question is how the revised sales profile changes closing stock and the capacity for another commitment.

Keep the value basis consistent. A sales budget at selling value and a purchase order at cost cannot be compared as if they were the same measure. Check the unit position first, then apply the relevant price or cost basis.

Follow one jacket order from forecast to excess exposure

Consider a separate Merchmix apparel example, not Target’s operational records. The retailer holds 200 casual jackets. A confirmed order contains 300 more at $30 each, a $9,000 commitment. The revised selling-window forecast is 250 units, and the planning objective is to close with 100.

Why are only 150 incoming units needed? The retailer needs 250 units for forecast sales plus 100 to meet its closing-stock objective: 350 in total. It already holds 200, so only another 150 are required. The calculation is 250 forecast sales + 100 target closing stock less 200 held = 150 required intake.

However, 300 units are already on order. That is 150 more than the current plan needs. Keeping all 300 would leave 250 at close, rather than the 100-unit objective. The 150-unit commitment gap is therefore excess against this plan, not an approved cancellation, a cash saving or permission to buy another 150. Until an authorised amendment is confirmed, the full order remains included.

At the stated unit cost, that additional 150 represents $4,500 of stock exposure. It is not a cancellation charge, a realised loss or a guaranteed saving. Receipt timing and availability must still support the sales profile; a period-end calculation alone cannot prove the weekly plan is feasible.

Use OTB to identify the commitment gap before another buy

Core’s OTB discussion should begin with the order that already exists. In this simplified unit bridge, required intake of 150 sits against 300 committed. The 150-unit commitment gap means the current assumptions call for a review before more jackets are bought. It does not instruct the supplier to cancel anything.

The buyer can test demand, the closing-stock objective and receipt timing in the MFP/WSSI plan. If one assumption changes, recalculate the effect and keep the decision visible. Avoid treating an unconfirmed quantity reduction as available buying headroom.

This is the important connection between budget and buying: the plan should include the supply the business is still obliged to receive, even when a lower intake would be preferable.

Read the OTB guide

Carry the same order into Beacon

Beacon is Merchmix’s supplier portal. Its Procurement area includes Synced Purchase Orders and order details, giving the supplier-facing discussion a specific reference and set of lines. Match the retailer’s stock order with the supplier view before discussing a change in quantity or arrival date.

In the example, PO-2030 contains small 60, medium 120, large 90 and extra-large 30: 300 jackets in total. The buyer’s proposed retained quantity is 150, split 30, 60, 45 and 15. That would be $4,500 at cost if agreed. It remains a commercial request, not a completed order amendment.

Use the shared order reference to establish what can change, which quantities are affected, the relevant dates and any supplier terms. The illustrated Beacon view shows the existing order and a separate discussion summary; it does not invent a cancellation button or claim a response has been submitted. Until confirmation, the full 300 remain in the planning example.

Compare the price decision with the cost of changing supply

For the stock already held, Core can support a markdown planning discussion. Suppose 100 jackets are being assessed at a $60 ticket price or a proposed $48 price, with unit cost held at $30. Selling all 100 would generate $6,000 or $4,800 of revenue, and $3,000 or $1,800 of gross profit before other expenses.

The $1,200 gross-profit difference isolates price for the same assumed quantity. It does not predict that both prices would sell 100 units. A useful decision also tests how much might sell, how quickly, and what remains at the end of the window.

Compare that price scenario with any confirmed supplier amendment terms, using the same horizon and cost basis. The example assigns no cancellation fee because none has been established. Keeping $4,500 of exposure visible is different from claiming $4,500 can be recovered by cancelling an order.

Close the loop between the plan and the commitment

Once a supplier response is confirmed and an authorised order change is recorded, update the corresponding intake assumption and recalculate the stock plan. If the request is declined or the timing changes, the plan still needs to reflect what the business will actually receive.

Core supplies the budget, MFP/WSSI and OTB context; Beacon supplies an order-specific place for supplier collaboration. The practical lesson from the earlier costs in Target’s comparison is to connect those decisions while choices remain open, rather than wait until unwanted intake and selling-price pressure must be managed separately.