Research Area: Target Canada - Empty Shelves

Oct 2019

Business Analysis

Target Canada: Empty Shelves

Executive Summary:

Target Corporation, one of the largest US retailers decided to make an international move with
its acquisition with Zellers- Canadian retailer in early 2011. Target Corporation acquired 189
leases from Zellers and opened its subsidiary, Target Canada in 2013 while deciding to sell 64 -
74 of acquired locations to other retailers. In March 2013 they opened their first three stores in
Ontario, Canada as test stores which happened to be close to one of its three distribution
centres. Later that year, Target went on aggressively with its expansion by rolling out more
locations in the same year and the following year, 2014.

Target Canada announced plans to hire 27,000 employees rather than retaining Zellers local
employees. Also, the company decided to build and implement an entirely new I.T.
infrastructure from scratch, that was inefficient and untested for the fast roll out plan. They were
facing supply chain and logistics problems. Poor assessment of converting the various metrics
 (as per Canadian standards) involved in inventory management system was one of the reasons,
Target Canada was left behind with empty shelves discouraging potential buyers.

With all of these issues, Target Canada announced departing Canada in early 2015 within less
than two years of its operations. Lower customer satisfaction rate, poorly built ERP, higher
pricing and other factors, incurred the company $5 billion in losses while, laying off 17,600
employes. Their global expansion plan was an epic failure and a lesson to be learned for many
other retailers in the industry.

As a Business Analyst for Target Canada, I would have likely used the following techniques to
address and asses the ongoing issues in a timely manner to avoid their failure and
recommending possible solutions for the brand to exceed market requirements and
expectations:

Root Cause Analysis:

Root cause analysis should have been used when Target Canada saw the various problems
that mainly began with its processes; due to the decisions made by the management; it’s first
entry into the international market and the inadequacy in inventory management system. This
technique is used to identify, understand and evaluate the various underlying causes of the
problems. This prevents an organization from solely dealing with the effects of the problems at a
later stage. It is an iterative analysis approach to recognize maybe more than one root cause(s)
that contributed to the Empty Shelves. The main root causes in Target Canada’s case were but
not limited to: failed management; aggressive launch strategy; newly developed ERP; people;
supply chain & logistics process.

Root cause helps organize the elicited information to conduct deeper analysis, if needed. Target
Canada can adopt either of the two approaches -
 Reactive Analysis: Identifying the root causes that led to empty shelves and come up with
potential solutions to correct the faulty process; learning the demographics of the new
geographic areas; eliciting and documenting needs and requirements of all local stakeholders
involved prior to making the international move and maybe analyzing risks involved in
developing a new IT system.
 Proactive Analysis: Identifying areas of underlying potential problems to take preventive
measures to avoid the effects. This would help Target Canada foresee one of the major problem
areas, which was inventory management and lack of supply to stores to meet demands. Also, it
would help their suppliers to deliver products to the warehouse in a timely manner.

Root Cause Analysis primarily uses four main activities:

 Problem statement definition: This defines the issue that needs to be addressed.
 Data Collection: This is used to gather detailed information about the effects like the
enormity of the effect, timing, etc.
 Cause Identification: Discovers the patterns of effects to recognize steps that contribute
to the problem.
 Action Identification: Defines corrective action that will prevent or minimize recurrence.

SWOT Analysis:
SWOT analysis would have proved a constructive tool for Target Canada to assess the
strengths, weaknesses, opportunities and threats to both - the internal as well as the external
conditions while entering market across the border. This evaluates overall state of an
organization. Conducting SWOT analysis would have clarified picture for all of its stakeholders
in regards to providing a better insight of the impact of their current state conditions on the
future state conditions. This would aid in identifying the potential barriers to success and
creating an action plan for Target Canada to overcome these barriers while identifying potential
opportunities for growth in the new market. And, it would also buy them sometime to create
strategies to address the existing threat.

Strengths:
 Target Canada had a very large market presence in Canada.
 Well established company with a good reputation amongst quite a few Canadian
shoppers who did cross-border shopping.
 Being a recognized brand, it received strong reception upon its launch.
 It had almost similar offerings of a mixed variety of products from well-known brands.

Weakness:
 Used the same strategies in the Canadian market as they used in the American market -
disregarding the fact to meet the needs, expectations and demands of local customers.
 Store sizes were comparatively smaller.
 Products were 15% higher in prices as compared to the competitors and deviated from
its promise “Expect more, pay less” while trying to focus on quality.
 Not a Canadian based brand.

Opportunity:
 Retaining Zellers employees who had high knowledge about local customers needs and
this in turn, would have gain Target Canada Zellers guests as well.
 Creating an international experience for customers.
 Introducing E-commerce and online shopping stores worldwide.
 Coming up with its own private label merchandise.

Threat:
 While Canada was mostly english speaking, language barrier still existed.
 Target Canada had a local competitors such as Walmart, Home Depot, Loblaws,
Sobeys, etc. who had a presence in the market and had locations that were easily
reachable buy shoppers.
 Zero experience and knowledge in the international retail market industry.

Root Cause Analysis Diagram:

The Fishbone Diagram: A fishbone diagram basically is a cause-and-effect diagram. It is used

to identify possible causes of a problem rather than focusing on the solution.
(Reference: BABOK V3)
(Please refer to the attached hand-drawn diagram on the next page)

As it is shown in the diagram, Target Canada had 4 major problem areas: Operations / Process;
Company Management; New Territory (Market) - Canada and People involved - these together
resulted in to the “Effect - Empty Shelves”
Target Canada decided to develop a new IT infrastructure for its POS and supply chain
management system which turned out to be inefficient in so many aspects such as ignoring the
metrics system used in Canada. The metrics used by their system were not up to the Canadian
standards for e.g. measurable units (inches, cms, etc.) as well as the currency value itself since
$1 canadian only accounted for an approximate of 70% of the american dollar. To add to this
they experienced a massive data security breach that compromised the personal information of
more than 70 million customers - this cost them their customers losing trust in the brand.
Maintaining adequate stock levels to meet target audience’s demand was a constant challenge.

Supply chain system was not transparent enough which led to a misunderstanding between the
company’s warehouse / Distribution centres and suppliers. The “in-DC” date was assumed to be
the date when the products would arrive in the warehouse whereas for the suppliers it meant
the date when the products were to be shipped out. This overwhelmed their warehouses with
stocks. The analysts turned off the metric that was supposed to flag off the product that ran into
unexpected shortage as a result, Canadian system generated automatic replenishment data.
Inadequacy in reports left the shelves barely stocked in stores thereby losing customers.

Entering the new market with lack of knowledge about the requirements of local customers and
inability to satisfy customer needs resulted in lower traffic in stores. Another cause to add to this
problem was a 15% higher pricing compared to its local competitors. They also failed on
geographical expanse in Canada as the store locations were far to reach for some people.

Management’s plan and strategy to build implement a fresh I.T. infrastructure while rolling out
many stores at once in a very short span of time for its first international move turned out to be a
major failure. Target Canada underestimated the Canadian market and unions; they were
criticized for hiring new staff rather than retaining Zellers employees. They miscalculated the
supply and demand graph due to inaccurate communication between the distribution centres
and stores.

Conclusion and Lessons Learned:

References:

 BABOK V3
 https://en.wikipedia.org/wiki/Target_Canada
 https://www.emaze.com/@AOFZFWQC
 https://www.zdnet.com/article/billion-dollar-failures-how-bad-decisions-and-poor-it-killed-
target-canada/
 https://www.theglobeandmail.com/report-on-business/missing-the-mark-5-reasons-why-
target-failed-in-canad/article22459819/
 https://medium.com/@mariga0099/case-study-targets-failure-in-canada-c37a1d25b0ed
 https://hbr.org/2015/01/why-targets-canadian-expansion-failed
 https://chainstoreage.com/news/analysis-targets-canadian-lessons
 https://www.itbusiness.ca/news/4-it-lessons-learned-from-target-canadas-failure-as-
documented-by-canadian-business/64199
 https://bstrategyhub.com/targets-swot-analysis/