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Target says supply chain 'reset' will help fix Canada woes

By Solarina Ho and Susan Taylor

TORONTO (Reuters) - Target Corp is repairing the supply chain problems it holds largely responsible for last year's botched Canadian expansion and expects to show measurable progress on a turnaround by this fall, its top executive in Canada said on Tuesday.

In its first international expansion, Minneapolis-based Target opened an unprecedented 124 stores and three distribution centers in Canada last year, losing nearly $1 billion as sales fell far short of expectations.

Disappointed shoppers complained of higher prices than in U.S. stores, poor selection, and empty shelves, and distribution center workers told Reuters that poor planning led to supply chain problems that began long before the first store opened.

"With the benefit of hindsight, if we could do it all over again, we wouldn't have opened up that many stores, that many DCs (distribution centers), in that short a time frame. I know that much," Mark Schindele, Target Canada's new president, told Reuters.

"We're now unwinding some of the decisions we made that were based on speed."

Some analysts say that Target, which was also hurt badly by a massive U.S. data breach late last year that involved 40 million payment card numbers, should cut its losses in Canada and either close poorly performing stores or pull out entirely.

Schindele, a 15-year Target veteran who came to Canada in May, said the company is focused on improving all of its stores and would not answer questions about whether any closures are being considered.

SUPPLY CHAIN "RESET"

The discount retailer is pushing a three-pronged turnaround plan that will focus on its supply chain, pricing, and merchandise selection.

As a first step, all 130 stores are counting their inventory, to help "reset" an overwhelmed supply chain. Most stores have completed that work and are reporting significantly fuller shelves, Schindele said.

He added that the rapid pace of Target's entry resulted in problems with the set-up of its all-new Canadian technology systems due to hastily made decisions.

A key issue, distribution center staff had told Reuters, was that shipments of many products coming into warehouses did not match data in Target's computer system. That created a bottleneck as staff scrambled to reconcile differences.

Schindele said that when the system was first set up, minimum order quantities were not aggregated at the vendor level, as is typically done, but by the distribution centers, which made tracking purchase orders difficult.

"If your data integrity isn't good, it's really hard to keep stores in stock," he said.

With one year of operations under its belt, Target Canada now has sales data to help forecast demand and allocate products. Schindele said excess inventory problems have been alleviated significantly since last year.

The recovery plan, which reflects work with two different consultants, also includes retraining staff. Workers were initially pushing inventory through the system, rather than allowing the software to do its job, Schindele said.

Technology will be reconfigured and stores will also see merchandise shipped more frequently.

"We expect to see measurable progress this fall," Schindele said, but did not provide details.

In response to customer complaints, the company said it is changing its price-match policy to add Canadian online retailers such as Amazon.ca and Walmart.ca, while allowing shoppers to use popular price matching apps.

The cheap-chic retailer will add 30,000 new products and expand its line of exclusive products, including a partnership with Canadian celebrity interior designer Sarah Richardson to try to boost sales.

Executives would not provide any Canadian sales or profit growth targets or say how much the repair plan will cost.

Target cut its second-quarter profit estimate last week and said Canadian sales were softer than expected. The company is scheduled to report results on Aug. 20.

New Target Chief Executive Brian Cornell officially starts work on Tuesday, but he was briefed by Schindele last week on the recovery plan and will tour Target stores when he visits Canada this week.

(This story corrects spelling of name for interior designer Sarah Richardson)

(Editing by Jeffrey Hodgson; and Peter Galloway)

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