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 On Wednesday, the fourth-largest U.S. retailer blamed its
"incredibly complex supply chain" for unacceptable stock levels at
its stores this year, forecasting weak growth in current quarter
sales at established stores.
The focus on the supply chain network is the latest move by CEO
Brian Cornell, who took charge a year ago and announced a
restructuring plan in March.
Under that program, Cornell eliminated several thousand corporate
jobs, revamped grocery operations and announced a $1 billion
investment in supply chain technology.
Mulligan, who was promoted from the position of chief financial
officer on Monday, said that in-store product stock levels have been
getting worse over the last couple of quarters. Kathee Tesija, the
company's former chief merchandising and supply chain officer, was
moved to an advisory role in June.
"Given the breadth and complexity of the business, it will always be
a challenge to be in stock on every item in every store... but our
guests need us to be consistent in delivering everyday essentials,"
Mulligan said.
Target's supply-chain problems have grown more acute as it has
expanded its offering of consumable goods such as meat, fresh
produce and dairy products, which in turn have brought customers
back to their stores more frequently than in the past.
Target's larger rival, Wal-Mart Stores Inc <WMT.N>, has struggled to
tackle the problem of running out of stock at its own stores for
several years, despite having one of the largest and most
sophisticated supply chain networks in the business.
Analysts and industry consultants said that while Wal-Mart's
problems revolve around insufficient employees to fill shelves, an
issue the company is addressing, Target's issues stem from its
reliance on external distributors.
"Target tends to use outside wholesalers and outsources a large
amount of distribution, typically on fast-moving consumables," said
Burt Flickinger, managing director at retail consulting firm
Strategic Resource Group.
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Products such as groceries, fresh produce, meat, dairy are
replenished up to a 100 times or more every year, and when an
outside wholesaler short-ships, Target's stores suffer. The clear
solution would be to take control of its supply chain, he added.
"They have had problems in the past with it and they probably rely
on third-party wholesalers and distributors more than they need to,"
said Brian Yarbrough, retail analyst at Edward Jones.
In an earnings conference call Target said its supply chain was
built to serve an outdated model in which product flowed from
vendors through distribution centers to stores.
The company did not respond to subsequent requests for comment.
Target also has tried to order less inventory than rivals, striving
to turn over inventory quickly and reduce capital needs. Typically,
retailers like to keep enough stock in their stores to meet around
90 percent of anticipated demand, and over 96 percent for advertised
or promotional items, Yarbrough said.
"Target historically has leaned on the side of under-ordering or
under-allocating to keep inventory turns high," said Neil Stern,
senior partner at retail consultancy McMillan-Doolittle.
(Reporting by Nandita Bose in Chicago; Editing by Peter Henderson
and Ken Wills)
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