Target Canada: Rapid Changes Ahead

Target released its first quarter results last week and it was no surprise that results were disappointing.  The company has been plagued with many problems since opening up shop in Canada last year with 127 new stores.

First quarter profits decreased 16% to US$ 418 million.  Canadian segment sales were $393 million, up from $86 million last year but still falling short of analysts’ estimates.  Canadian division operating losses increased 3.1% to $211 million.

Last week, Tony Fisher was fired as the head of Target Canada and the company announced that Mark Schindele would become the new leader of Canadian operations, after his previous role of Senior VP of merchandising.

The company is also looking to fill a newly created role of non-executive chair that will support Mr. Schindele and advise on market conditions.

Earlier this month, Gregg Steinhafel unexpectedly stepped down as Target CEO and CFO John Mulligan stepped in as interim CEO.

A management shake-up is perhaps what the company needed in the wake of a number of mishaps that have plagued the company in the last few years.

Target’s ambitious plans to enter Canada with stores across the country quickly produced lackluster results as the company was faced with the reality that doing business in Canada was not the same as doing business in the US.

The large geographic scale of our country with varying tastes combined with a small population size is a harder market to serve than the US.

The company opened 3 distribution centres in Canada located in Milton and Cornwall, Ontario and Calgary, Alberta.  Each warehouse covers 1.5 million square feet or approximately 26 football fields.

Even though Target normally runs its own warehouses, it hired Eleven Points Logistics to run the Canadian warehouses.

The biggest issue is that inventory was significantly lacking at stores as account after account revealed empty store shelves that could not meet customers’ needs.

“I’ve been in the stores and I’ve seen them,” Mulligan said.  “It’s unacceptable.”

A Globe and Mail article from last week reported that goods were coming into the Canadian warehouses faster than they were going out because barcodes on many items did not match what was in the computerized system.  This caused huge delays in getting goods out and ready for sale.

The company also encountered a major problem when a massive data breach occurred during the holiday season, resulting in the theft of at least 40 million payment card numbers and 70 million other pieces of customer data.

The recent management shake-up reveals that the company remains committed to improving its situation in Canada.

Mr. Schindele has extensive experience managing supply chains and will hopefully get the company back on track by working through the supply chain problems that have existed in Canada.

“One of our key priorities is improving performance in Canada more rapidly and we believe it is important to be aggressive,” Mulligan stated.

The company has revamped its flyer to entice consumers to the store with the promotion of certain staple items.

Now, Canadian consumers wait to see if fast changes can be made to promote a turn-around in stores and entice customers with a richer shopping experience.





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