What Is Target Canada Doing To Address Its Inventory Issues?

A couple of months back, Target (NYSE:TGT) Canada CEO, Mark Schindele, outlined certain turnaround efforts for the company’s botched up Canadian expansion. He said that a team was reviewing the performance of each Canadian store to identify the company’s shortcomings on a store-by-store basis. In the initial stages of the review, Target had identified three key areas that needed to be rectified. The company’s supply chain was at the base of all three problems, however, and needed significant revamping. On several occasions, Canadian buyers had complained that a lot of products were out of stock, which resulted from ineffective demand forecasting.

To prevent its recurrence, Target is planning to employ better reporting structure that can identify its inventory needs effectively. It is retraining its staff to use best methods to push inventory through the system and is working on developing new methods specifically tailored for Canada. ^[1] Recently, Mr. Schindele commented during his tour of Target’s Toronto stockyards, that the company is pushing more inventory than the system deems fit in its top performing stores. The program, internally known as “how high is high”, is pushing Target’s top 20 outlets to their limits, to find out how well they can perform amid the ongoing turnaround efforts. ^[2] It appears that the retailer is willing to take the risk of over-stocking its best outlets, to recognize their true capacity. Once Target successfully gauges the potential of its top outlets, it can plan accordingly for the remainder of its stores.

Our price estimate for Target stands at $67, implying a premium of less than 10% to the current market price.

See our complete analysis for Target

In addition to this experiment, Target is taking several steps to ensure quick and effective replenishment of its shelves across the entire network. Employees are being given as much as six hours to unload inbound trailer trucks, and stock stores and back rooms effectively, as a part of the “coming clean on trailers” program. The staff is being instructed to check each four foot section of a particular store every two weeks, to make sure everything is in order. “Green zones” are being set up to help employees stock products exactly at the right location within the specified area. With the “98 percent accuracy” initiative, in-store staff is ensuring that each room is 98% stocked at all times, making it easier to track the quantity of different items.

Although individually these initiatives may not look too convincing, their effective execution and proper integration can help Target gradually augment its supply chain network, which has been its biggest concern since its debut in the country. Mr. Schindele said that the company has already made significant progress on effective stocking of categories such as beauty and health goods, household staples, toys and electronics, but shoes, handbags and home goods still need some attention. Since an efficient supply chain is the foundation of any FMCG business, it appears that Target is focusing its efforts on the right facets.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Target says supply chain “reset” will help it fix Canada woes, Reuters, Aug 12 2013 [↩]
2. Target Canada to experiment with over-stocking in turnaround effort, The Globe and Mail, Oct 22 2014 [↩]