In its first international expansion, Minneapolis-based Target opened an unprecedented 124 stores and three distribution centers in Canada last year, losing nearly $1 billion as sales fell far short of expectations.
Disappointed shoppers complained of higher prices than in U.S. stores, poor selection, and empty shelves, and distribution center workers told Reuters that poor planning led to supply chain problems that began long before the first store opened.
“With the benefit of hindsight, if we could do it all over again, we wouldn’t have opened up that many stores, that many DCs (distribution centers), in that short a time frame. I know that much,” Mark Schindele, Target Canada’s new president, told Reuters.
“We’re now unwinding some of the decisions we made that were based on speed.”
Schindele said that Target was too ambitious when it launched starting in March 2013.
“If I could build a time machine and go back, we would’ve liked to have a slower approach,” Schindele said in an interview with The Canadian Press.
“It was too much in too short a window. Our biggest issue (was) that we needed more time.”
Schindele joined Target Canada in May from the company’s U.S. operations where he held the position of senior vice-president of merchandising operations. He replaced Tony Fisher who was fired from the job earlier this year.
Some analysts say that Target, which was also hurt badly by a massive U.S. data breach late last year that involved 40 million payment card numbers, should cut its losses in Canada and either close poorly performing stores or pull out entirely.
Schindele, a 15-year Target veteran, said the company is focused on improving all of its stores and would not answer questions about whether any closures are being considered.
SUPPLY CHAIN “RESET”
The discount retailer is pushing a three-pronged turnaround plan that will focus on its supply chain, pricing, and merchandise selection.
As a first step, all 130 stores are counting their inventory, to help “reset” an overwhelmed supply chain. Most stores have completed that work and are reporting significantly fuller shelves, Schindele said.
He added that the rapid pace of Target’s entry resulted in problems with the set-up of its all-new Canadian technology systems due to hastily made decisions.
A key issue, distribution center staff had told Reuters, was that shipments of many products coming into warehouses did not match data in Target’s computer system. That created a bottleneck as staff scrambled to reconcile differences.
Schindele said that when the system was first set up, minimum order quantities were not aggregated at the vendor level, as is typically done, but by the distribution centers, which made tracking purchase orders difficult.
“If your data integrity isn’t good, it’s really hard to keep stores in stock,” he said.
With one year of operations under its belt, Target Canada now has sales data to help forecast demand and allocate products. Schindele said excess inventory problems have been alleviated significantly since last year.
The recovery plan, which reflects work with two different consultants, also includes retraining staff. Workers were initially pushing inventory through the system, rather than allowing the software to do its job, Schindele said.
Technology will be reconfigured and stores will also see merchandise shipped more frequently.
“We expect to see measurable progress this fall,” Schindele said, but did not provide details.
In response to customer complaints, the company said it is changing its price-match policy to add Canadian online retailers such as Amazon.ca and Walmart.ca, while allowing shoppers to use popular price matching apps.
The cheap-chic retailer will add 30,000 new products and expand its line of exclusive products, including a partnership with Canadian celebrity interior designer Sarah Richardson to try to boost sales.
Executives would not provide any Canadian sales or profit growth targets or say how much the repair plan will cost.
While these are just some of the changes, Target still needs to win over shoppers who may feel burned by negative experiences over the past year. Schindele said he’s confident that more exclusives and better pricing will help shift sentiment in Target’s favour.
“It all starts with having the right content in the store, being priced right and the right inventory levels,” he said.
“That’s what will change our story.”
Analysts have been less forgiving, with at least one suggesting the company weigh an exit strategy to get out of Canada.
Credit Suisse analyst Michael Exstein said the new Target Corp. CEO should prioritize a decision on whether the retailer should take the money spent in Canada and funnel it back into new investments for the more successful U.S. business, which has recently faced its own trouble with a data breach involving consumer information.
Target Canada has been a costly investment, causing its parent company to post a US$1-billion loss in 2013 and another $211-million loss in the first quarter.
Target cut its second-quarter profit estimate last week and said Canadian sales were softer than expected. The company is scheduled to report results on Aug. 20.
As Target Canada works to manage its existing stores, the company is also opening three others later this fall, which at first glance seems to run against its own suggestions that it took on too many locations at launch.
But Schindele said Target can handle a few more stores, which will bring its total store count to 130 spread across much of the country.
“These are great markets and these are great locations,” he said.
New Target Chief Executive Brian Cornell officially starts work on Tuesday, but he was briefed by Schindele last week on the recovery plan and will tour Target stores when he visits Canada this week.
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