The new boss of Target Canada has drawn up a detailed plan to fix its raft of problems – from too many items jammed in its warehouses to pricing that is too high because 1,000 of its products failed to go through the retailer's price comparison checks.
Mark Schindele, who took over as Target Canada president in late May, said the U.S. discounter's hasty launch of 124 stores and three warehouses last year "led to some unintended consequences that we're unwinding now." They include bare store shelves and some prices that were higher than the same product at arch-rival Wal-Mart Canada Corp.
"It makes me feel terrible where we're disappointing our guests [customers] where we have an empty shelf," Mr. Schindele said in an interview on Tuesday at the Toronto office of the retailer's public relations firm, decorated in Target's trademark red and white hues. "We see less of that than we have in the past but we know we still have work to do."
Target Canada's bungled roll-out – it now has 130 stores here – has been a big setback for U.S. parent Target Corp., which also suffered through a massive data breach in late 2013 and pressures to upgrade its digital strategy. The Canadian snags hit the bottom line, with an operating loss of almost $1-billion (U.S.) in its division here last year and another $211-million in its first quarter of 2014.
Last week, Target lowered its second-quarter outlook, pointing partly to pinched profit margins in Canada amid heavy discounting to clear excess merchandise.Mr. Schindele, a veteran Target U.S. executive who is leading a new top team in Canada, has set to work to find the "root causes" of the problems and turn around results. He hired two consultancies to help analyze supply chain systems, inventory order lead times, prices and merchandise offerings. He's now aiming to win over shoppers by lowering some prices, introducing more goods available in its U.S. stores as well as products for Canada only and streamline bogged-down distribution procedures to get merchandise to stores faster.
"I know we'll be measurably better in the fall," he said.
Howard Davidowitz, chairman of New York-based retail consultancy Davidowitz & Associates, said Target has the know-how to fix the basics of its supply chain and pricing challenges. But it will have a tougher time recovering from the "bad first impression" it made on Canadian shoppers. "They're going to have to claw their way back."
Mr. Schindele said products got stuck in Target's warehouses because of overly complex distribution processes in Canada.
In the U.S., each of its suppliers gets a unique identification number, but in Canada each supplier gets a ID number for each of Target's three distribution centres – an extra strain for its employees. "It's hard to track purchase orders – it triples their workload," Mr. Schindele said, adding the retailer is moving to the U.S. system of handing out one number per vendor.
He explained that Target is required by its suppliers to make minimum orders; but in Canada, those were made for each of its three distribution centres – rather than an overall minimum order. It resulted in overordering and an excess of goods, he said.
Target Canada also wrestles with mismatched order scheduling between the time its suppliers think an order is due and when the retailer expects it to arrive in the warehouses, he said.
To improve ordering accuracy, he recently introduced inventory reporting, having staff take a physical inventory count in all its stores, which improved in-stock levels by 4 per cent within two weeks of the tallies, he said.
Another issue that Target Canada struggled with was bar codes on some of its products failing to match those in its computer system, which clogged up merchandise in the warehouses as workers tried to sort out the inventory, he said. The retailer is adjusting delivery schedules so that stores receive merchandise more frequently, he said.
On the pricing front, Mr. Schindele discovered recently that about 1,000 of its products that are also carried at Wal-Mart, failed to be part of Target Canada's internal comparison price checking. "Those, more often than not, were higher priced and they were adjusted downward," he said. Target's internal data showed that prices of about 20,000 of its items that are also stocked at Wal-Mart are on average "within 1 per cent" of those price levels.
Its pricing review also found that its promotional flyer pricing "was good, not great," he said. Starting last month, the chain adjusted flyer prices to be "at or better" than its key competitors here. And it is introducing a wider price-match policy to include key online rivals, not just physical stores.
Target is responding to other customer demands by introducing some products that it carries in its U.S. stores but hadn't stocked in Canada, including e.l.f. cosmetics, plans to triple its NYX line here and plus-sized apparel by early 2015. It is adding other brands that are available at its U.S. stores, such as Bose electronics and Fitbit fitness trackers.