Target’s trouble stocking shelves due to outdated...
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Oct 24, 2014  |  Vote 0    0

Target’s trouble stocking shelves due to outdated system

Credit Suisse says Nordstrom faring much better in Canada starting out slow

OurWindsor.Ca

Target Corp.’s ongoing troubles keeping shelves stocked at its Canadian stores are related to an automated supply system that can’t keep up with current demand, says a Credit Suisse retail analyst.

After a tour of major department stores in Calgary last week, Michael Exstein found Nordstrom’s first store in Canada is doing well, particularly since the U.S. chain took its launch north of the border a lot more slowly than the discounter did when it first came last year.

While the Alberta-based Target’s stock situation was a “vast improvement” from Toronto stores, he found it was “clearly not up to U.S. standards yet and any changes are likely resulting in only incremental improvement to sales.”

“To say that Target has had a difficult time in its entry to the Canadian marketplace is to state the obvious,” said the New York-based managing director of Credit Suisse in a research note to clients Friday.

Target had an ambitious launch of 124 stores but lost more than $1 billion (U.S.) on its Canadian operations in 2013 after it failed to win repeat customers, who complained that shelves weren’t properly stocked and that prices were too high.

He noted one of the big issues the company is dealing with is so-called “auto-replenishment”, a process that pulls replacement stock based on the prior year’s rate of sale.

“With such a low rate of sale as a base, the stores in many cases look barely inventoried, as empty shelves for overstocks that are not needed remain,” said Exstein.

Target has said it is taking steps to address such problems, but there has been speculation that the retailer may have to close stores.

Exstein recommends Target store merchandising get a “more forceful point of view” in areas such as fresh and refrigerated foods, women’s active wear and seasonal items -- all of which need more inventory available to create interest and differentiation versus its competitors.

There are some tests underway in select Target stores to see what additional inventory could do for sales in specific categories of merchandise to begin to address this issue, he noted.

“At the end of the day we think the decision as to what to do with Canada will rest on simple math; how long will it take and how much will it cost to generate a reasonable return?,” his note said.

“For now we are heartened that the company has made the progress it has but we are still not sure it’s close enough to be where it needs to be,” he added.

Conversely, after his research team’s visit to Walmart, he noted: “The merchandising of the store reminded us how consistency of strategy in Canada has distinguished this division over the years.”

Meanwhile Nordstrom only has plans so far to open five more stores following the first one in Calgary last month. The first GTA stores are scheduled to open in 2016, at Toronto Eaton Centre and Yorkdale Shopping Centre. A Sherway Gardens location will open in 2017.

“We came back from Calgary more confident that (Nordstrom) will be a creditable and differentiated competitor in Canada as it rolls out additional locations,” Exstein noted.

Toronto Star

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