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Target’s new CEO makes Canadian turnaround his priority

Target CEO Brian Cornell rejected the prospect of a retreat from Canada, saying he is focused on Plan A, which is repairing the current Canadian business.

DARREN CALABRESE/The Globe and Mail

The new chief executive officer of Target Corp. is taking a hands-on approach to fixing the company's problems in Canada, making regular trips to check stores here as he heads into the all-important holiday season.

Brian Cornell said in an interview on Wednesday he will travel to Canada from Target's head office in Minneapolis on a "regular" basis to oversee the turnaround efforts.

He has "put on pause" the company's earlier plan to appoint a non-executive chairperson with domestic experience to oversee the troubled Canadian operations.

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The close involvement in the Canadian division of Target's top executive underscores the seriousness of the situation for the big U.S. retailer.

The Canadian operation lost almost $1-billion (U.S.) last year and the red ink has continued to flow in 2014, as consumers complained about high prices and empty shelves.

Target's business in this country still needs a lot of work, with advertised items sometimes failing to show up on store shelves amid displays of seasonal products – Halloween merchandise, for example – that may not stand out enough, Mr. Cornell said.

"We're seeing improvement," he said, before heading into a two-hour staff meeting with nearly 1,000 Canadian head office and senior store employees at the Mississauga's Living Arts Centre, including appearances by celebrity Jennifer Hudson and Indy race car driver Scott Dixon. "Am I happy with the pace? Absolutely not."

Just eight weeks into the top job, the former PepsiCo Inc. executive has put a focus on mending Target's Canadian snags in the retailer's first foray outside the United States. He said he feels the urgency to move quickly as domestic rivals pull out all the stops to nab shoppers in the runup to the crucial holiday period.

Target opened its first stores in Canada in March of 2013 amid huge hype and high expectations from customers who were familiar with with its cheap-chic offerings from their U.S. shopping sprees. But Target was a disappointment on almost every level, and the retailer's financial results fell far short of targets.

In its second quarter, Target Canada's same-store sales at outlets open a year or more, a key retail measure, fell 11.4 per cent while gross profit margins tumbled to 18.4 per cent, reflecting the effects of clearing unsold inventory at discounts, from 31.6 per cent a year earlier and 30.4 per cent at the chain's U.S. division.

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Some analysts have suggested Target should exit Canada and concentrate on its U.S. stores, which were hit with a massive data breach late last year, along with soft sales and underdeveloped digital initiatives.

But Mr. Cornell rejected the prospect of a Plan B retreat from Canada, saying he is focused on Plan A, which is repairing the current Canadian business under new leadership "so we can properly assess the potential of this business in the marketplace."

"This is about back to basics," he said, leaning forward in a red chair, the chain's signature hue.

"My message to the team is not about what's new, what's exciting, some magic new change we're going to make. It's about doing all the fundamentals well and executing the Target experience in Canada. …Tomorrow is not fast enough. There has to be a sense of urgency."

Still, industry watchers are baffled that some products advertised in Target flyers continue to be missing from store shelves.

"There are some structural problems in the organization," said John Williams of retail consultancy J.C. Williams Group. "How could you drop a flyer and then not have the merchandise in the stores? That's a multimillion dollar mistake. … It will be a miracle if it's ready for the holiday."

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Mr. Cornell said Target is working through structural flaws that resulted in products getting stuck in Target's warehouses because of overly complex distribution processes in Canada. For example, bar codes on some products failed to match those in its computer system.

The retailer is accelerating delivery schedules so that stores receive merchandise more frequently, he said. It is dropping some prices, prompting a consultancy to report recently that Target Canada's prices beat those of Wal-Mart Canada.

Mark Schindele, the new president of Target Canada, vowed in August that it would be "measurably better in the fall."

"I'm certainly looking for improved performance and execution in that important fourth quarter," Mr. Cornell said on Wednesday.

"I look at Canadian results every day – we start our day with that. … This is a key area of focus, not only for the Canadian team, but my entire leadership team at Target."

But problems remain, such as Halloween displays in its two-level stores that are tucked away on the second floor and not prominent enough, potentially costing sales, he said. The retailer is now testing in its Ancaster, Ont. store placing Halloween merchandise in a conspicuous spot near the entrance, a spokesman said later.

If he could do it over, "we would have entered differently," Mr. Cornell said. "I think we should have done it at a slower pace." Target opened 124 stores in its first year, and now has 130.

"Expect that I'll be more engaged," he said. "My leadership team will be more engaged."

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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