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Supply Chain Problems a Critical Factor in Target Missing the Mark

Posted April 07, 2015

Target Canada recently announced that it will be closing the last of its 133 retail stores next week, the final phase of the company’s liquidation following closure of its three distribution centers and headquarters earlier this year. In addition to leaving 17,000 employees out of work, once its Canadian operations are finally shuttered, the Minneapolis-based retailer will have incurred $2.5 billion in pre-tax losses and taken a massive $5 billion write-down for the U.S. parent company.

Since launching in early 2013, the second-largest discount chain in the United States has struggled in the Canadian market, contending from the outset with a myriad of problems including an untimely breach of credit card security, difficulties implementing new technology and systems, poor communications with headquarters, staffing and training issues, erratic stock levels, a weak Canadian dollar, and a value proposition with shoppers that was far below most expectations.

Owing to the massive scale and truly comprehensive extent of Target’s Canadian fiasco, it seems destined to become a textbook example in business schools of what not to do when expanding into international markets. Numerous reasons have already been advanced to explain what went wrong with the retailer’s strategy.

Brian Cornell, the parent company’s Chairman and CEO since last August suggested that the company moved into Canada too quickly. “We missed the mark from the beginning by taking on too much too fast,” he said, adding that since being with the company he had “developed a better understanding of just how deeply our entry disappointed Canadian shoppers.” This sense of letdown stemmed in large part from the pricing discrepancy between Target stores on different sides of the border, which resulted in many feeling the company didn’t live up to its tagline “Expect More. Pay Less.”  

Target Canada’s low inventory and chronically “empty shelves” was also a problem many shoppers not only noticed but complained about, especially as the situation went largely unresolved for the first year of operation including the Christmas peak season and beyond. This was the result of what some analysts described as a “supply chain disaster” the catastrophic nature and effects of which were described at length in an e-mail to Gawker last year, purportedly from a management-level employee.

The undertaking was so aggressive; it’s little wonder that the ability to stock the distribution centers with the “right” product (e.g. what stores actually needed) was an afterthought. Did you know that there is no way for stores to know what is at the Distribution Centre, and what is arriving each day by truck? Stores have ZERO idea. You could hope/pray and expect one thing, and open a full 54 foot trailer full of something completely different (and usually do). What kind of system is this? Unique to Canada as the U.S. has a different system altogether (one presumably that works). What do you do then? You stock and fill the shelves in the backrooms. The front of store & shelves remains empty.

Unlike the company-operated supply chain infrastructure south of the border, presumably because of Canada’s low population density and vast geography, Target made the strategic decision to outsource distribution to a third-party logistics firm called Eleven Points Logistics, an operating division of Pittsburgh-based Genco ATC that was created solely for the purpose of serving Target Canada’s needs. Even so, there was a considerable discrepancy in cost and efficiency between operations on different sides of the border with Target’s 3PL operating 28,800 sq. ft. of distribution centre space per retail store in the U.S. versus 40,300 sq. ft. of distribution centre space per retail store in Canada. Factoring into this differential the higher cost of doing business in Canada (e.g. wage rates, taxes, legislation, multilingual packaging requirements, duplication of administrative overhead, etc.), there is little wonder many shoppers complained about a major pricing gap between stores in Canada and those in the United States.