We strive to bring learning for our Supply Chain Matters readers that supply chains, and flawless execution of customer fulfillment do matter in business strategy.
Last week, the retail industry took special notice of the news that Target, after less than two years of making its presence in Canada, made a painful decision to close all 133 of its retail outlets in Canada. According to business media reports, Target is now expected to report a pre-tax write-down of $5.4 billion in its fiscal fourth quarter and release over 17,000 retail workers as a result of its decision, a rather expensive lesson on the importance of supply chain strategy and execution. Target’s Canadian operations reportedly incurred upwards of $2 billion in losses.
To be balanced, not all of Targets challenges related to Canada rested solely to supply chain strategy and execution, but Canadian consumers witnessed the most visible aspects, namely large stores that consistently lacked inventory and products that were not competitively priced.
A New York Times published article (paid subscription or metered complimentary view) observed that while Target stores in the United States were long popular over the border destinations for Canadian consumers, it struggled to translate that formula directly within Canadian stores. Differences in suppliers and what was described as a poorly executed distribution network made goods in Canadian stores far more expensive than U.S. outlets. Consistently empty shelves caused added consumer impressions “giving the appearance of the end of a going-out-of-business sale.” Consumers then avoided Target stores because of limited selection and an unproductive shopping experience. Further noted by the Times was that Target failed to distinguish its brand from other existing Canadian retailers such as The Loblaw Companies, Canadian Tire and others. Also noted is that Target was not the only large or even smaller specialty retailer to stumble in Canada because of in-depth experience in merchandising and distribution in international markets.
Fortune and CFO.com published articles noted that Target’s strategy was to take over existing retail stores operated by discount chain Zellers, which were located in predominately economically distressed Canadian neighborhoods. That turned out to be a conflict with Target’s upscale sheik retail branding in the U.S.
That theme was brought forward in an article published by Canadian Broadcasting, CBC, Target Canada’s Failed Launch Offers Lessons for Retailers. By our lens, it provides insightful perspectives on the unique retail challenges within Canada and that Target is one of many other retailers who have struggled. According to CBC, price matters: “The major sticking point is price.” It points out that if retailers are not providing a compelling experience and flawless execution, than price becomes the default decision criteria. Further noted is that many U.S. retailers turned their sights toward Canada after the severe economic recession of 2008-2009, since Canada was mostly spared from the economic effects. Target opened 124 of the former Zeller stores in less than a year: “a pace far too fast to execute the experience properly.”
In the end, Target’s Chairman and CEO Brain Cornell had to make and communicate the tough decision that enough was enough. It was time to pull the plug on the Canadian effort.
In contrast, U.S. based retailers such as Costco, Wal-Mart and Zara continue to exhibit successful retail execution strategies within Canada.
We amplify this Target experience because of the important learning it provides to retail and B2C focused supply chains with international presence. Know your market, understand its unique nuances and strive to have the voice of supply chain strategy and customer execution at the decision table. That may not always be easy, when marketing and merchandising teams have broad influence on senior management decision-making, but history provides constant learning that supply chain does matter. It is not just a cost center for conducting business.