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Target Continues Canadian Turnaround Efforts

Target recently opened three new stores as part of their continued investments in Canadian expansion. The store openings, located in Ottawa, Mississauga, and Winnipeg, bring the total number of Target Canada locations to 133, or roughly 7 percent the number of US locations. These are the final locations to open in 2014, marking the end of an aggressive campaign that began with 124 stores opening in 2013.

Target’s big push into Canada hasn’t been easy, though. The company lost nearly $1 billion on Canadian operations last year and continues to lose money this year. In a recent press release, Mark Schindele, president of Target Canada, notes, “We’ve been listening to our guests and taking a hard look at where we need to improve. We’ve uncovered the root cause of some of our challenges and are focused on three main areas: improving in-stocks, sharpening our pricing strategy, and enhancing our merchandise assortment.”

Eliminating Out-Of-Stocks

Out-of-stocks can be a killer in retail. Every failure to provide an item in stock when a customer is present leads that customer to a competitor, resulting in a direct loss of revenue and possibly a long-term loss of that customer. Target Canada has been suffering from a large number of out-of-stocks as the company struggles to supply their rapid expansion across the country. In order to correct these issues, the company recently announced several initiatives:

  • A physical count of inventory at all stores, resulting in a reset of systems, and more accurate ordering and shipping data.
  • Better forecasting and allocation of product based on sales history and promotional plans to ensure the right amount of product is in the right place at the right time.
  • Adjusting delivery schedules so stores receive merchandise more frequently.
  • Providing new training and processes to headquarters and in-store teams to create good routines and engaging store team members.

The company hopes the new procedures will help retain current customers and lure back past customers as advertised merchandise becomes fully stocked in all locations.

Aggressive New Pricing Strategies

Target Canada has faced many consumer complaints regarding high prices and the limitations of its price-matching policies. In order to better compete with the likes of Walmart Canada, the company has announced several changes:

  • Price matching for any local competitor’s flyer or weekly ad (print or online), and price matching for select online retailers, including Amazon.ca, Walmart.ca, Bestbuy.ca, Toysrus.ca, Babiesrus.ca, CanadianTire.ca, Futureshop.ca and Sears.ca.
  • Guests can now use popular apps, such as reebee and flipp to price match, instead of bringing a printed flyer.
  • Price match can now be completed at the register instead of guest service.

Target Canada has also added about 1,000 additional items to its roster of 20,000 items that are regularly shopped, to compare prices with its largest competitors.

“If we see a like item priced higher at Target, we’ll lower it,” said Schindele. “And with the addition of our price match guarantee, and 5 per cent off every purchase with a REDcard, guests should be confident they’re getting the best price at Target.”

The effort seems to be working. A recent pricing study from Kantar Retail showed that an identical basket of goods cost 3.9 percent less at Target Canada than at Walmart Canada. The study featured a basket of 33 identical national brand items from grocery and health and beauty categories at stores located within five kilometers of each other. Many of the items were part of Target’s new pricing strategy.

Expanding Merchandise Assortment

Target Canada is expanding relationships with exclusive and Canadian brands to appeal to a broader customer base. Some of the new merchandising improvements include:

  • A new partnership with popular Canadian interior designer and HGTV star, Sarah Richardson, will feature an exclusive new line of home décor in Fall 2015. “We are thrilled to be working with Sarah on this exclusive new home décor line,” said John Butcher, SVP of merchandising. “It’s exactly the kind of creative and exciting design offering that only Target can deliver.”
  • Partnering with Roots to extend the exclusive and popular Beaver Canoe assortment, with expanded home décor, and the addition of new apparel like sleepwear and slippers coming this fall.
  • In Apparel, expanding the maternity assortment by 50 per cent in September.  In addition, Nick & Nora, the popular U.S. women’s fashion line, will be available in Target Canada stores next year. The previously announced Altuzarra for Target designer collaboration launches September 14. Also, early next year a plus size line will be introduced.
  • Expanded cosmetic lineups, through an exclusive partnership with e.l.f. and the addition of an “e.l.f. essential” line, as well as tripling the space allotted for the popular NYX line in October.
  • In September, Target Canada is launching an exclusive brand of household cleaners called Better Life, as well as the exclusive eco-friendly line Ecover from Europe.
  • In Home, the launch of the exclusive line of appliances called French Bull, which will bring exciting color and design to everyday appliances at a great price. In addition, this fall Target Canada will also be bringing to stores an exciting new range of well-known small appliance brands some of which have been previously unavailable in mass retail.
  • Overall, between now and Christmas, Target will be bringing more than 30,000 new items to its assortment, from the upcoming Halloween and Holiday assortments, to Fall apparel.

Target is hopeful all of these changes, with more to come, will lead the Canadian operations into a successful holiday season and hopes for profitability going into 2015. With slower expansions planned going forward, Target now has the time it needs to fix its supply chain issues and regain the consumers’ trust.

 

ToysRUs

Really, Toys R Us? Really?

File this one under the “What were they thinking?” heading. Mega toy retailer Toys R Us is facing a large consumer backlash after it began carrying “Breaking Bad” action figures. On the surface this sounds like a no-brainer. After all, “Breaking Bad” was an award-winning staple on the AMC network for five seasons and has millions of dedicated fans. The company would be remiss not to carry licensed product from the show. However, it isn’t just the fact that the retail toy chain is carrying the figures, it is which figures they are carrying and the accessories that go with them.

Introducing Your Neighborhood Drug Dealer

Toys R Us has chosen to include a drug dealer doll with all of the accessories you might expect, including bags of cash and crystal meth. Yes, I said crystal meth. I completely understand the goal to acquire older customers, but common sense has to prevail at some point. Drugs have always been, and will always be, a hot-button topic with parents, and when you are dealing with a customer base that averages well under 15, drugs are an even larger issue. This is a touchy morality issue, but when your core customer is a child, certain considerations should be made.

Toys “R” Us has released a statement saying “the product packaging clearly notes that the items are intended for ages 15 and up” and the figures “are located in the adult action figure area of our stores.” The problem is that these sections of the stores are frequented by all customers, young and old, and are not sectioned off. The company could just have easily made the action figures in question available online only, where retail sales are growing exponentially anyway.

Why Are Drugs Different From Guns?

Proponents of Toys R Us keeping the controversial products on the shelves point out that drugs are no different than violence, and violence has long been a part of children’s toys. Walk into any toy store or down any toy aisle at a superstore, and you will see Nerf guns, cowboy pistols, Hunger Games bows and arrows, and even ninja swords and stars. GI Joe, Spiderman, Batman, and many other action figures depict violence and come with weapons, and there doesn’t seem to be an outcry over these products.

Drugs may be a different animal, though. Many parents are desensitized to violence and see many of the toys as being associated with playing “cops and robbers” or “Army,” with a clear sense of good versus evil, with a triumphant hero/heroine or possibly even antihero. With drugs, there is an associated lifestyle that includes sex, violence, theft, addiction, death, and a myriad of other criminal behavior. There is not good versus evil, only evil. Many parents have no problem with a gun in the house for hunting or protection, but the majority would freak out if there were drugs in their house. I would imagine Toys R Us’ buyers and corporate officers should be able to understand how drugs are viewed by parents and make the right decision for the betterment of their company.

On the company’s website, Toys R Us’ corporate vision states: “At Toys“R”Us®, we love kids! Since the company’s founding more than 65 years ago, kids have been central to who we are and what we do. We approach our business operations with responsibility and integrity, understanding the trust parents place in us to do the right thing and act as a reliable partner as they navigate the various stages of parenthood.” If this is the case, many parents may be rethinking the trust they place in a company that sells action figures complete with drugs.

Radio-Shack-Stacked-logo

Stay Of Execution? Will Radio Shack’s New Financing Help Them Survive?

This week Radio Shack announced the company has refinanced roughly $585 million in loans to help the cash-strapped company avoid bankruptcy heading into what is probably the single most important holiday retail season in the company’s 93 year history. The new deal gives the company some much-needed liquidity and will allow it to build up inventory going into the busiest selling season of the year.

The question remains, though. Is this just a temporary delay in Radio Shack’s continuous slide into bankruptcy and possibly dissolution? The company has been struggling for years to show any signs of profitability or relevance in today’s changing retail and electronics markets. The company’s stock is barely hanging on to a dollar per share, a significant downfall from its near $25 high mark in 2010 and has not crossed the $5 mark since May of 2012. The stock is down nearly 70% this year alone.

Radio Shack had to look to its own investors for the refinancing and additional capital. Led by Standard General, the investors are trying to protect what little value there is in the company and are banking on a successful holiday run to ensure repayment of the debt once held by GE Capital. They seem to be counting on the recent release of several new iPhone 6 products, new Samsung phone and phablet versions, and America’s propensity to buy electronics during the holidays to drive sales and profit going into next year. History is not on their side, though. Fourth quarter 2013 showed a 19% comparable store sales decline, one of the best indicators of retailer strength. In that same quarter, the company refinanced the exact same debt they refinanced this week, showing that not only are sales continuing to slow, but revenue is not enough to pay down this debt.

So, where does this leave Radio Shack? Staggering revenue declines, like the 22% decline this past quarter, are a cash-flow killer. Unless the company is able to stage a miraculous turnaround in branding and relevance to the general consumer (e.g. Best Buy ), the only thing this refinancing has done is stave off bankruptcy until possibly the middle of next year. The company lacks an identity in today’s retail space and lacks the capital to re-position itself against Best Buy, Walmart, Target, Amazon, eBay, and the myriad of other electronics sellers out there.

For a great read on the refinancing and how Radio Shack’s board is protected until June 2015, read Beth Jinks’ article on Bloomberg.com.

Mobile Payments

The Mobile Payment Wars Just Got Really Interesting

Amazon’s recent decision to offer a special introductory rate of 1.75% per card swipe with its new Amazon Local Register takes a direct shot at major competitors Square and PayPal. According to a recent article by Forbes’ Samantha Sharf, The introductory rate will be available to customers who sign up by October 31st of this year, however, the rate will remain in effect until January 1, 2016. The standard rate will be 2.5%, which already is below the 2.75% and 2.7% Square and PayPal charge respectively.

So, what does all of this really mean? For retailers, it could be a major win. Every fraction of a percent saved in card swipe fees flows directly to the bottom line, improving their margins. With retail margins already pretty lean, even a quarter percent savings is significant. If this starts a price war, the savings could be even more significant.

For companies like Amazon, PayPal, and Square, the market is huge. According to Gartner Research, mobile payments have already crossed $235 billion per year and will exceed $720 billion by 2017. With this kind of money at stake, more payment processing companies will be entering the mobile space and increasing competition, which should be great for consumers and retailers alike.

The UK’s Payment Council put out a great paper on the future of retail payments titled “Pay Your Way 2025: Future Payments” in September of 2012. The paper reflects on past predictions, looks at current payment trends, and attempts to forecast the future of the payments industry. It is a great read and offers a great look at where the industry is headed. I highly recommend you take a look at it here.

 

 

Not So Fast, Dollar Tree

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The proposed acquisition of Family Dollar by Dollar Tree has been making headlines for a week now, but now things just got really interesting. According to Bloomberg’s David Welch, Matthew Campbell, and Matt Townsend, Dollar General may be considering a challenging bid for Family Dollar. In their recent article, the trio states that, according to unnamed sources familiar with the situation, Dollar General is exploring financing options for a bid to purchase Family Dollar, cutting out Dollar Tree completely. The bid would make perfect sense for Dollar General. Not only could the company acquire one of its largest competitors, but it could also reap the benefits of even larger buying power. Additionally, the company would be able to shed stores in competing markets that would cannibalize each other and enter markets where Family Dollar has a stronger presence. The two companies also have many more synergies than Dollar Tree and Family Dollar have. Dollar General and Family Dollar carry a similar product range and share a similar pricing structure, making the transition to one company much easier for employees and customers alike. With the U.S. economy still sluggish, the slow growth in retail sales, and the lack of increasing wages in lower-income homes, now may be the most opportune time for Dollar General to make this move, acquire a rival, and deal a serious blow to a rising competitor.