IT's About Business 2.4 Target Fails to Expand in Canada POM MIS Seventy-two-billion-dollar Target Corporation (www.target .com) is a fixture in the American retail landscape, with more than 1,800 stores. Target decided in 2011 to move north and open lo- cations in Canada. To do so, Target paid $1.8 billion (U.S. dollars) for the leases to 124 Zellers discount stores. At that time, compe- tition from Walmart had adversely impacted Zellers' sales and the Canadian retailer realized that its property was worth more than its sales. Unfortunately, most Zellers stores were dated, didn't match Target's retailing layout, and were in locations not often frequented by Target's usual middle-class demographic. Target planned to open Target Canada in 2013. This strategic goal meant that the retailer had less than two years to get ready. It had to deploy a distribution system (including three distribution centers and a supply chain management system), hire and train workers, renovate the old Zellers stores, develop supplier relation- ships, develop databases containing product and consumer data, place products into its physical stores, and get the word out among potential customers. One of Target's most important operational goals for its ex- pansion into Canada was to develop and implement the supply chain management (SCM) system. Target had an excellent SCM system already operating in the United States. However, the com- pany felt that customizing its existing system presented too many programming obstacles. Target chose to build and deploy an en- tirely new supply chain management system for the Canadian market. Developing any new information system to support a compa- ny's operations in a new country requires a great deal of planning, development, and customization. In the case of Canada, there were two complicating factors. First, Canada has its own currency and the conversion rate be- tween the U.S. dollar and Canadian dollar fluctuates regularly. The SCM system for Target Canada had to manage both U.S. dollars and Canadian dollars because many products were sourced from the United States. This process meant that the SCM system had to have a currency field. Second, Canada uses the metric system whereas the United States uses the Imperial system. For example, a 12-fluid- ounce bottle of shampoo in the United States is 355 milliliters in Can- ada. Therefore, Target Canada's SCM system had to manage both measurement systems and be able to convert between the two. Tarest Canada's SCM custom bad to lorcome 75.000 products stock. The SCM system automatically reordered products running low, such as those that were surprisingly popular. When this situa- tion occurred, the analyst responsible for such products would be reprimanded. As a result, the analysts turned off this tracking feature in the SCM because it allowed them to do so. Essentially, the analysts were being penalized for low stocks and they switched off the fea- ture that would alert their managers when that was indeed the case. Managers therefore often thought that stock levels were ade- quate when they really were not. As a result, Target Canada could not monitor its stock. Ini- tially, too few products were shipped to the distribution centers, resulting in empty shelves. Target Canada ordered the products, but it experienced backups in its distribution centers because it could not correctly calculate shelf space (due to confusion be- tween the Imperial and the metric system). Target Canada had to move items to extra warehouses. The retailer ended up with far too much inventory in its warehouses and far too few products in its stores. The end result? Canadian customers were not happy when faced with empty shelves and sales suffered. Target Canada filed for bankruptcy, closed all of its stores, and threw 17,000 people out of work. The parent company took a loss of approximately 2.1 bil- lion U.S. dollars on its Canadian business. And the takeaway message from this experience? Target should not have developed a new SCM system for Canada. Rather, the company should have slowly adapted their existing SCM sys- tem for the Canadian market. Furthermore, the strategy of launch- ing stores nationwide, rather than rolling them out slowly, was extremely risky. Sources: Compiled from D. Gewirtz, "Billion-Dollar Mistake: How Inferior IT Killed Target Canada," ZDNet, February 11, 2016; J. Castaldo, "The Last Days of Target Canada," Canadian Business, January 22, 2016; L. Northrup, "15 Things We Learned about the Downfall of Target Canada," Consumerist, January 22, 2016; S. Harris, "Target Canada Closing 80 Stores by Easter Weekend," CBC News, March 25, 2015; D. Dahlhoff, "Why Target's Canadian Expansion Failed," Harvard Business Review, January 20, 2015; H. Peterson, "5 Reasons Target Failed in Canada," Business Insider, January 16, 2015; H. Shaw, "Target Corp's Spectacular Canada Flop: A Gold Standard Case Study for What Retailers Shouldn't Do," Financial Post, January 15, 2015; P. Wahba, "Why Target Failed in Canada," Fortune, January 15, 2015; I. Austen, "Target Push into Canada Stumbles," New York Times, February 24, 2014; www.target.com, accessed October 31, 2016. Target planned to open farget Canada in 2013. This strategic goal meant that the retailer had less than two years to get ready. It had to deploy a distribution system (including three distribution centers and a supply chain management system), hire and train workers, renovate the old Zellers stores, develop supplier relation- ships, develop databases containing product and consumer data, place products into its physical stores, and get the word out among potential customers. One of Target's most important operational goals for its ex- pansion into Canada was to develop and implement the supply chain management (SCM) system. Target had an excellent SCM system already operating in the United States. However, the com- pany felt that customizing its existing system presented too many programming obstacles. Target chose to build and deploy an en- tirely new supply chain management system for the Canadian market. Developing any new information system to support a compa- ny's operations in a new country requires a great deal of planning, development, and customization. In the case of Canada, there were two complicating factors. First, Canada has its own currency and the conversion rate be- tween the U.S. dollar and Canadian dollar fluctuates regularly. The SCM system for Target Canada had to manage both U.S. dollars and Canadian dollars because many products were sourced from the United States. This process meant that the SCM system had to have a currency field. Second, Canada uses the metric system whereas the United States uses the Imperial system. For example, a 12-fluid- ounce bottle of shampoo in the United States is 355 milliliters in Can- ada. Therefore, Target Canada's SCM system had to manage both measurement systems and be able to convert between the two. Target Canada's SCM system had to log some 75,000 products. Each product contained a great deal of data, such as the physical dimensions, supplier, UPC code, pricing, weight, and many other variables. Because the parent company did not use its U.S. SCM sys- tem, the Canadian system had to either import data from the par- ent company or require staff to input the data manually. Numerous errors arose, resulting in some 70 percent of the products with one or more data errors. Data for each of the 75,000 products had to be analyzed in or- der to construct a model for purchase (demand side) and restocking (supply side) for each store. As with all supply chain management systems, Target Canada's SCM system had to know when product stock levels reached reorder levels. However, Target Canada penal- ized its marketing analysts any time there were too few products in but it experienced backups in its distribution centers because it could not correctly calculate shelf space (due to confusion be- tween the Imperial and the metric system). Target Canada had to move items to extra warehouses. The retailer ended up with far too much inventory in its warehouses and far too few products in its stores. The end result? Canadian customers were not happy when faced with empty shelves and sales suffered. Target Canada filed for bankruptcy, closed all of its stores, and threw 17,000 people out of work. The parent company took a loss of approximately 2.1 bil- lion U.S. dollars on its Canadian business. And the takeaway message from this experience? Target should not have developed a new SCM system for Canada. Rather, the company should have slowly adapted their existing SCM sys- tem for the Canadian market. Furthermore, the strategy of launch- ing stores nationwide, rather than rolling them out slowly, was extremely risky. Sources: Compiled from D. Gewirtz, "Billion-Dollar Mistake: How Inferior IT Killed Target Canada," ZDNet, February 11, 2016; J. Castaldo, "The Last Days of Target Canada," Canadian Business, January 22, 2016; L. Northrup, "15 Things We Learned about the Downfall of Target Canada," Consumerist, January 22, 2016; S. Harris, "Target Canada Closing 80 Stores by Easter Weekend," CBC News, March 25, 2015; D. Dahlhoff, "Why Target's Canadian Expansion Failed," Harvard Business Review, January 20, 2015; H. Peterson, "5 Reasons Target Failed in Canada," Business Insider, January 16, 2015; H. Shaw, "Target Corp's Spectacular Canada Flop: A Gold Standard Case Study for What Retailers Shouldn't Do," Financial Post, January 15, 2015; P. Wahba, "Why Target Failed in Canada," Fortune, January 15, 2015; I. Austen, "Target Push into Canada Stumbles," New York Times, February 24, 2014; www.target.com, accessed October 31, 2016. Questions 1. Look ahead to the primary activities in Porter's value chain. Which of these activities did Target Canada's supply chain management system impact?- 2. In the last sentence of the case, we note that it was very risky for Target to open an entire nation of stores at once. If Target had chosen to open only a few stores at first, how would that decision have impacted Target Canada's supply chain management system? 3. In your opinion, which was Target Canada's largest prob- lem? Its faulty supply chain management system or the parent company's decision to open over a hundred stores at once? Support your answer.