Billion-dollar

mistake: How
inferior IT killed
Target Canada
Unmanageable deadlines and
disastrous IT wrecked this top US
retailer's attempt at international
expansion. The moral of the story:
IT drives the enterprise.
By David Gewirtz for DIY-IT | February 11, 2016 -- 15:08 GMT
(23:08 GMT+08:00) | Topic: Enterprise Software

Business school case studies tend to fall into two

categories: epic wins and oh-my-gosh-how-could-

they-possibly-have-been-so-stupid epic failures. This

article discusses a real-world billion dollar story that
falls into the second category. As epic failures go, this
one is worthy of the history books.
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Let's set the scene. Target is one of America's largest

and most successful retailers. The 114-year-old
company that evolved out of the old Dayton-Hudson
company now has more than 1,800 retail locations.
Unfortunately, none of those are in Canada. Anymore.
And thus begins our story.
This is a story of hubris, impossible deadlines, and
information technology. Yes, as it turns out, if you
want to be a worldwide retailer, your information
systems are the glue that holds it all together. In

Target Canada's case, not so much.

As an American with three Target stores right in our
neighborhood, I didn't realize that Target wasn't a
worldwide thing. But it's not. Walmart, by contrast,
operates something over 11,000 stores in 28
countries. Walmart is a $465 billion company. Target
is a $72 billion company, certainly not small potatoes.
But Target, it seems, wanted to be more like Walmart.
And so, in 2011, the Target Corporation decided to
expand into Canada, as described in-depth by an
excellent analysis by Canadian Business. That should
have been easy, right? After all, we speak the same
language (ignoring the French-speaking Qubcois)
and most Americans somehow seem think of Canada
as our 51st, more polite, colder state to the north.
But it's not that simple. Take two factors as an
example. Canada has a different currency. Sure, it
uses dollars, but at the time of this writing a Canadian
dollar is worth only 72 percent of an American dollar.
That conversion rate is constantly fluctuating. Also,
Canada uses the metric system. To us in the US, a 2foot deep shelf is a 2-foot deep shelf. In Canada, that
shelf is 60.96 centimeters.
You can already begin to see the IT problem, can't
you?

An inventory system that was set up to handle US

dollars would need to be updated to handle Canadian
dollars. If the system didn't already have a currency
field, that would need to be added throughout.
Conversion methods would need to be added. And,
for an inventory management system that has to fill
shelves, knowing the size of product packaging would
be important. Software that calculates area for
placement would have to be modified to handle
multiple measurements and measurement systems.
Add to that issues of sourcing of products and pricing.
All the products don't just come from the US. So a box
of small widgets in the US might be 12 inches tall. But
that same product packaged for the Canadian market
might only be 11 1/2 inches tall, or whatever that
might translate to in centimeters.
You get the idea. Internationalizing an IT system is a
lot of work. For an IT system tracking the amount of
data that an enterprise the size of Target needs,
you're talking about a lot of development and
customization.

IT ALL STARTED WITH FUR

Our story actually goes back to the year 1670. Yes,

I'm talking about the 17th century, over 340 years ago.
This is when the Hudson's Bay Company, technically
the The Governor and Company of Adventurers of
England Trading into Hudson's Bay, was founded
under the charter of England's King Charles II. The
Hudson's Bay Company was granted a virtual
monopoly on fur trading in and around the Great
Lakes.
Over the centuries, Hudson's Bay grew and morphed.
It operated steamships and funded explorers. It
invested in oil and gas operations. The trading posts
of the 17th century eventually morphed into the
department stores of the 20th century, with Hudson's
Bay owning a range of retail outlets.
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In 1978, the Zellers department store chain attempted

to buy Hudson's Bay, but as it turned out, Hudson's
Bay bought Zellers. Zellers did quite well as a
discount store chain up through the 1990s, but
competition from Walmart began to cost Zellers
market share.
By 2010, it became apparent to Zellers' management
that the property and leases of the Zellers' stores
were worth more than the actual retailing activity itself.
So they set out to sell the chain and, in particular, their
very valuable leases.
This is where our story returns to Target, because in
2011, Target's management, under the leadership of
CEO Gregg Steinhafel, paid $1.8 billion for the Zellers
leases -- a total of 124 stores. Target now had less
than two years to build up a distribution system that
could keep 124 stores stocked and selling.
That's two years to hire and train staff, build and stock
distribution centers, customize and remodel stores,
establish vendor relationships, create demand among
a new market of customers, customize or write a vast

IT supply chain management system, and populate

the databases with records and the physical stores
with products.

EVERYTHING WENT TERRIBLY, TERRIBLY

WRONG

The company built three brand new, Amazonwarehouse sized distribution centers in Canada. For
those who haven't spent time in the supply chain of
retail, a distribution center is where all the various
products intended for the stores come in from
thousands of vendors and get sorted and prepared for
shipment to individual stores.
Think of the distribution center as a physical
switchboard. Stock isn't supposed to stay in the
distribution center. These warehouses must be
flowing, dynamic organisms, breathing in products
from all over the country and the world and breathing
out semi-trucks destined for the individual stores.
But Target Canada couldn't keep track of their
products. At first, there was too little coming into the
distribution centers. Therefore, store shelves were left
bare. Canadian customers who visited these first
Targets found ghost towns in the form of large,
cavernous stores with barely anything on the shelves.

It was like a real-life Fallout 3 Super-Duper Mart.

Later, the distribution centers became overwhelmed.
The company managed to order goods, so they came
into the distribution centers. But because they couldn't
properly compute shelving locations (that conflict
between imperial units and the metric system), items
backed up so much in the distribution centers that
Target Canada management had to offload stock to
additional area warehouses.
So they had way too much stock in storage and not
enough on the shelves.
As it turns out, Target has a well-oiled supply chain
operation and IT system in the US. But because of the
programming challenges I alluded to earlier, the
company chose not to try modifying that system to
support entrance into a new, international market.
Instead, they brought in an outside supplier, along
with subcontractors and consultants, and tried to build
something entirely new.
Here are two examples of where that approach went
spectacularly wrong.
The company had to track roughly 75,000 products.
Each product required a lot of information. It wasn't
just the length, width, and height of each object. You
needed the vendor, UPC code, other codes, pricing,

weight, costs, and more. Essentially, each product

required a couple of pages of field data to be entered
in.
And, because the company wasn't extending its
existing data entry system, the data being used either
had to be exported or entered from scratch. Lengths
were entered where widths needed to be. The wrong
prices were entered. The wrong descriptions were
entered. Low-level marketing assistants were pushed
on impossible deadlines to enter thousands upon
thousands of fields of information.
Is it any wonder that they got 70 percent of it wrong?
Then there was the replenishment system. As you
know, stores are designed to sell frequently bought
items, for example, Pampers. The idea is that the
neighborhood babies will poo, parents will buy
Pampers to contain that poo, babies will poo some
more, and more Pampers will be bought.
As the Pampers run low on shelves, the
replenishment system is supposed to know that, and
instruct the distribution centers to send more stock. In
Target's case, behind every product's replenishment
process was a business analyst, whose job it is to
predict just how much pooping the babies of a given
region will do.

As you might imagine, each product requires some

level of demographic and psychographic analytics in
order to build a model for purchase and replenishment
for each local store.
But the analysts were compensated (or, more
accurately) dinged if too low a percentage of their
products was kept in stock at any given time. The
replenishment system, by placing automatic orders,
would expose when certain products had had an
unexpected run, or there were too few in stock. When
this happened, the junior analyst would get the
equivalent of a demerit put on his or her record.
Not being stupid, the analysts turned off this metric -because they could. Apparently, the Canadian system
made automatic replenishment data an optional
switch, so when the analysts started to notice that
they were getting criticized for poor stocking levels,
they turned off the notification system that would tell
people that there were poor stocking levels.
As a result, management reading replenishment
reports thought there was plenty of stock, when that
was far from the case. Call it productmageddon. It
wasn't pretty.
All of this, of course, doesn't operate in a vacuum.
Canadian customers were not impressed. Sales never

took off. And there were more data errors. For

example, the "in-DC" date that described the date an
object would arrive in the distribution center was
interpreted by some as when the object actually
arrived, but by others as when it shipped to the
distribution center.
The point of all of this is that Target Canada could not
get its act together. Plus, other things were going on
at Target as well. You might have heard the name of
the company's CEO, Gregg Steinhafel, in another
context. In December 2013, Target in America
experienced a massive breach, which resulted in the
exposure of personal data on more than 70 million
customers.
Eventually, Target's board had enough and Steinhafel,
a 35+ year veteran of Target, was out. Brian Cornell,
who had previously been the boss at Sam's Club, was
installed as the new Target CEO. Target Canada,
which by this time had lost $7 billion, applied for
bankruptcy protection. All 133 stores were closed, and
17,000 employees lost their jobs.
So what lessons can be learned? There were so
many mistakes, it's hard to find one unifying thread,
but it's there if you look hard enough. Put simply,
Target should have never added an entirely new and

unrelated IT system for Canada. Instead, Target

should have carefully extended their existing IT
system to support internationalization, and once that
capability was available, only then consider expanding
into another country.
Additionally, the idea of trying to open an entire nation
of stores, rather than opening them incrementally, was
bound to fail. Scaling everything at once doesn't allow
for flaws to be discovered and mediated, but instead
leads to cascading failures like the ones that overtook
Target Canada's supply chain.
The moral of the story is that IT matters. If done
correctly, IT should not be an afterthought. IT drives
the entire enterprise. Forgetting that leads to dashed
dreams and lost billions.
UPDATE: Some commenters have asked about
Target Australia. Target Australia is a completely
different company, owned by a different company. The
naming rights were licensed from America, but no
other infrastructure or corporate governance is
shared.