It was a sad day in Canadian retail history when, just over a year ago, Target Canada filed for bankruptcy protection after months of struggling to gain a foothold in the marketplace. A highly anticipated launch seemed to face issue after issue from the get-go and consumers continuously felt let down by the retail giant. No doubt this story will be used as a business case in schools across the country for years to come – a perfect example of what not to do when entering new markets. Canadian Business recently published an article detailing the failed launch after speaking with close to 30 of the company’s former employees from the US and Canada [original article here]. They tried to answer the question that is still on many people’s minds; how could one of the best retailers in the US have failed so badly in Canada? The list of issues that contributed to this disaster are endless, and include everything from bad management decisions, lack of communication and poor market research to internal system and data failure and unrealistic timeframes. Despite the success of Target in the US – it is among one of the biggest US retail success stories, a $40+ billion company with roots extending as far back as 1902 – its entry into Canada was seen as a bold move, and was certainly not without its fair share of risks. Any such business trying to enter into the Canadian marketplace would face extreme competition from rival retailers.
The Beginning of the End
To say that Target had unrealistic and highly optimistic growth plans would be an understatement – in 2011 the company had plans to open 124 locations by the end of 2013 with the expectation that the Canadian company would be profitable within its first year of operations. Not to mention that they also had plans to build 3 new distribution centers in less than two years - a feat that typically takes a couple of years per center. The end result was that Target Canada filed for bankruptcy, wasted billions of dollars, tarnished its reputation and left approximately 17,600 people without jobs. In most cases, this would have completely destroyed a company’s chances of surviving and Target has been lucky to continue to see success among its US stores.
The reasons behind this devastating failure have been discussed and analyzed endlessly by the media and other businesses, as well as by those employees and people directly affected by it. Although many can agree that specific decisions and actions collectively attributed to its failure, there is no reason why the launch couldn’t have been successful. Target had long been hinting that it was considering entering the Canadian market, and this had consumers excited. Not to mention that with Zeller’s’ real estate up for grabs, it seemed like the perfect opportunity to make the move.
By March of 2013 however, it was clear to most employees that the launch into Canada was not going as planned and that continuing to open new locations could prove disastrous. According to one former employee, “Nobody wanted to be the one person who stopped the Canadian venture. It wound up just being a constant elephant in the room”.
One of the earliest and most important decisions that Target Canada had to make was concerning technology. It was necessary to find an ERP system that would allow the company to order product from vendors, process goods through multiple warehouses, and get product delivered to store shelves efficiently. Target’s US counterpart was already benefiting from such a system, however, that technology was not designed to manage specific Canadian requirements, such as the ability to deal with foreign currency and French-language characters. With such a tight timeframe, it would have been impossible for Target to customize its existing system to manage these new requirements and so the company opted to find a new, out-of-the-box solution. This was the first in a series of misguided decisions, and thus began the many software issues that contributed to the company’s decision to abandon the Canadian market.
Finding the right ERP software solution is a difficult and resource-laden task for any company, and with Target’s tight timeframe, successfully implementing a system within 2 years was next to impossible. The decision to upgrade existing systems versus purchasing something new has its fair share of pros and cons to weigh. For Target, its existing software did not include features specific to the Canadian market, however, it was a familiar system for employees and had proven successful for managing US operations. Successfully implementing a new system in such a short time frame should have been the first red flag for Target management. Proper implementations are hard enough without adding an unrealistic timeframe to the equation. This is also something that should have alarmed the software vendor in question – implementing a system quickly should never be at the expense of doing it properly. Although the company’s logistical and software problems were exacerbated by a short timeframe, other issues such as bad data, poor inventory management and inadequate training are also to blame.
Months prior to the company launching its first set of stores in March of 2013, there had been major data issues within their system, and it quickly became clear that this was the underlying cause of Target’s logistical issues. Inventory items had incomplete or missing information, long lead times were stalling deliveries, landed cost factors were not being accounted for and product was not fitting in containers as expected.
In order to decrease implementation timeframes, many companies choose to start fresh on the data front. This was exactly the case with Target; there would be no historical data to migrate over, only new information to input. However, even though only new information was being inputted into the system, it was still riddled with errors. Users experienced product dimension errors, the system was calculating costs using the wrong currency, inventory items had vague descriptions and there was a lot of missing data and typos. In addition, no features had been developed to notify users of data entry errors at the source, and so many of these errors were not discovered until much later in the supply chain. When it comes to software implementations, the data migration aspect typically represents one of the largest sources of system implementation costs and time. Even for companies that are starting fresh like Target Canada, it is important to receive training on proper data input and to set up specific guidelines for employees to follow. This ensures that information is entered in the correct format and with enough detail every time, regardless of the employee doing the entering. The data issues experienced by Target were so bad that eventually the company shut down its entire merchandising department for two weeks to fix them. During that time, every employee was responsible for verifying each piece of data in the system and then fixing any issues. Although this process did remove most of the bad data, it greatly affected employee morale and was a costly way for Target to realize the importance of maintaining accurate data.
To add to the problems of bad data, new employees hired to work at the Canadian Target offices did not receive the same type of training as those in the US. Once again because of the tight timeframe mandated by Target executives, the company was able to hire people with the right personalities, but did not invest enough time in their training on procedures and software. This lack of training would come back to haunt the company and directly impacted some of the data and supply chain issues Target experienced. Right along with data migration, there is a reason that software training is one of the other more costly aspects of software implementations, and that is because it is also one of the most important. It goes without saying that the better trained employees are, the more productive they will be. All things being equal, when employees feel confident using software they will rely on it more in order to perform their responsibilities. This in turn can help automate previously manual processes, therefore reducing the instance of human error. If Target Canada employees had been better trained on the system and business processes, many of the data and supply chain issues could have been avoided. Training should first and foremost empower employees to continue to be productive doing their everyday tasks, and then provide additional benefits by way of new features and opportunities. If employees feel confident using the system they will be able to identify other bottlenecks and opportunities – something that would have greatly helped Target.
Poor Inventory Management
For Target, the issue was never on the consumer demand side, but instead on sorting out their supply chain. Consumers who were shopping at Target would frequently find empty shelves and “out of stock notices”. This lack of inventory availability had consumers flocking to social media sites to post comments and complaints, another factor that hurt the company’s Canadian launch and brand reputation. It got so bad that at one point in time almost every single item on the front page of a printed weekly flyer was out of stock. Even after the big two-week data blitz, the company was still struggling with data quality problems that were negatively affecting the supply chain. Because the company didn’t have time to address these issues before the next set of new stores opened, the problems multiplied, causing even more damage. From the distribution side of the business, it appeared that there were no supply issues at all, as vendors were overwhelming shipping yards and warehouses with product. So much so that eventually Target was forced to rent more warehouse space. In some instances supply became so overwhelming that distribution centers were overflowing with product and delivery trucks were stuck waiting to unload in parking lots. Even when inventory was being unloaded, the process of shipping items to stores was rushed and disorganised, which led some stores to receive too much inventory and others not enough. It can be easy to neglect the inventory management process when sales and demand are high, however, as Target discovered, without proper inventory management those high sales numbers will quickly fall. When evaluating software systems, and during implementation, it is important to thoroughly assess the inventory management process in order to avoid such issues. Proper software will allow users to set up minimum re-order levels, taking into account lead times, so that employees are notified when new product needs to be shipped, track backorders in order to easily allocate new shipments, manage multiple units of measure for easy picking, packing and shipping, calculate landed cost factors in order to quickly process and receive shipments and track inventory across multiple warehouses.
As if Target did not have enough problems to deal with, other issues kept arising throughout the company’s distribution centers and retail stores. There were problems with the company’s back-end ERP solution communicating properly with the company’s warehouse system, and the point of sale software used in-store at each retail location was not working properly. According to one employee, the Canadian division did not do their due diligence when selecting its point of sale software, and they further explained that, “In the US, this never would have made it off the launching pad. There would have been a robust process for testing”. Having a tight timeframe meant that the solution was not adequately tested for its fit, and as such employees were stuck dealing with long boot up times, incorrect change, and the system constantly freezing.
Improper training and bad data also skewed the information that management was seeing and made the situation at each retail location seem better than it actually was. Only after the company had been experiencing continued supply chain issues for several months did a group of employees discover that some of the new hires were purposely turning off a key feature in the system – the ability to notify distribution centres that more product needed to be shipped before a retail store ran out. These new hires were among the group that received minimal training and were brought in fresh out of school with little experience. This, combined with the fact that they were being evaluated based on the percentage of their products that were in stock at any given time, led them to turn off the aforementioned feature. Doing so meant that the system would not report any items as out of stock, which elevated their numbers. New hires were worried about meeting the expectations of management, and did not fully appreciate the implications of turning off that feature – issues that could have been prevented with proper training.
In February of 2014, almost a year after its first set of stores opened, Target headquarters released its annual results – a US $941 million loss in Canada. This coupled with the fact that the US division was experiencing a massive security breach in which hackers stole the personal information of 70 million customers, did not do much to improve the company’s chances of success. Shortly after, the company’s CEO stepped down along with several other key members of the executive team. Realizing the negative impact the launch had on Canadian consumers and the brand’s reputation, Target released a YouTube campaign, apologizing to its Canadian customers and admitting that its strategy for the Canadian market was not well executed. This was the first step towards improving relationships with customers and resolving the launch issues. It was at this point in time that things started to look up. A new team had arrived with new energy to get the project back on track, and the company now had a year’s worth of sales data to analyze and use for decision making. This information allowed the company to better segment stores and focus on specific well-moving inventory and core products. Target also got serious about working with its software vendor to ensure it was using the system properly and to get input on functionality that could aid in identifying bad data and improve the supply chain process. Had Target built this relationship with the vendor from the start, many of its problems could have been resolved sooner. Selecting a software vendor should be like building any meaningful business relationship – both parties should be invested in the success of the other and as such should work together to help each achieve their goals. By the latter half of 2014, it was safe to say that the company was doing much better than in previous months and everything seemed to be back on track.
By the end of 2014, to the outside world it seemed like Target was finally starting to get things figured out, and the company had big plans for the year ahead. However, behind the scenes was a different story, as more members of upper management and the executive team disappeared.
On January 15th 2015 Target Canada officially filed for bankruptcy protection. Most of the upper management team had been notified of this possibility earlier in the year, but for some employees the news came as complete shock, and by April 2015 all 133 stores were closed. For some employees this brought a sense of relief, but for many others it was heartbreaking to know that they had uprooted their lives to move to Canada without success. Although frustrated with Target’s performance, in general consumers were disappointed to see the company leave. Not wanting to abandon the Canadian market entirely though, Target Canada announced that in October 2015 they would begin to ship goods ordered online to Canadian consumers. One can only hope that the company will run this operation a little bit differently.