Bungled Fulfillment and Distribution May Doom Target's Expansion

Published : June 11, 2014

business-thumbs-downSince its first brick-and-mortar store was opened in 1962, Target, with its iconic, red bull's eye logo, has grown to include 1,789 branches in the US as of May 2014. One of the powerhouses of American retail, second only to Wal-Mart, the Target Corporation has pushed forward with plans of global expansion. The first country of conquest has been Canada. However, poor warehousing, empty shelves and inflated pricing has left Canadian customers with a bitter taste.

Do these fulfillment and distribution woes spell the downfall of Target's global reach?

Leadership Issues

According to the latest new from the Associated Press, Target's Canadian operations have added two new members of their upper level management team. The new CEO and Chairman Mark Schindele will replace the resigned Gregg Steinhafel. As part of the company's efforts to regroup the faltering Canadian corporation, Schindele will report directly to Kathee Tesijja, who serves as the chief supply chain and merchandising officer of Target Canada. Two new hires that follow on the heels of the firing of Target Canada's president, Tony Fisher, two weeks prior.

In a slew of growing pains in the Canadian Target's first year, this is a turning point that may help pull the company out of its slump.

The Recent Data Breach

No customers shopping at any store wants to see their personal information shared irresponsibly, stolen or sold. And the widely publicized data breach-- which saw the theft of customer data across the US, thereby impacting the confidence of customers-- is one of the main reasons Steinhafel tendered his resignation.

While the incident occurred mid-December 2013 and was localized to US stores, the extent of the breach, more than 110 million individuals were affected, has had a negative impact on the year-old Canadian Target operations.

Forbes suggests that this data breach will not have as great of an impact on the decline of the Target stores in the US, as well as in Canada, in the long run-- only 5 percent of shoppers reported that they would stop shopping at Target as a result of the breach.

Back to Basics

If the Canadian Target is bouncing back from the loss of trust from the data breach, then why would the CEO and president both have been replaced less than six months after the theft? A major reason goes back to the supply basics of fulfillment and distribution.

Shoppers want to be able to go to a store, find what they need, and pay a reasonable amount for the product-- and Target Canada just can't seem to keep the shelves stocked with the right products.

Many shoppers have noted that the items sold at the Canadian stores differ from those in the US, a result of Canadian packaging laws, wholesale arrangements, and protectionist tariffs on certain foods. Therefore, even with the most supportive supply chain management team, Target in Canada will never be exactly the same as the stores in the US.

As Ottawan Target-shopper Nicole Chanansingh reported in The New York Times, “we’ve been down to the States quite a bit and we’ve shopped at Target and we were impressed. So we were excited when we heard they were coming. But I don’t think it’s the same merchandise, not the same stuff at all. So, we’ll see.”

For the Canadian Target operations, each of these points along the supply chain are in jeopardy. Those shoppers who previously crossed the Canadian-US border in order to fill their homes with Target products have tried to give their Canadian stores a go. Yet, as noted in Forbes, Canadian buyers have reported that many products were not in stock leaving shelves barren.

This low customer satisfaction rating, coupled with a lack of sound inventory management and excessive pre-opening expenses, have clearly affected the Canadian operations. In order to ramp up business, Target needs to focus on the basics of supply and demand.

Money Talks

If there is any doubt that Target's Canadian stores are faltering, the company reported $941 million in losses last year. For Q4, gross margins dropped to 4.4 percent due to heavy markdowns used to move excessive amounts of unsold inventory. Once again, there is the issue of dropping the ball in terms of understanding the targeted customer base in order to supply stores with saleable inventory-- a basic concept in supply chain logistics.

As reported by CBC News, interim CEO John Mulligan said, “We recognize that we've disappointed Canadian guests. We think we're a great retailer. We have not lived up to our potential nor our expectations.” So it will be interesting to follow this American retail giant as it slogs its way through the fulfillment and distribution woes currently holding the chain back from further expansion.

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Topics: Supply Chain Logistics

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