5 reasons why Target is squeezing lower prices from suppliers
WATCH: Retail sales in Canada were up nearly one per cent in May. Target Canada is still struggling, losing $1 billion since opening up shop in Canada 18 months ago. Now, the beleaguered company is asking for help. Vassy Kapelos reports.
Target Corp is reportedly pressing the companies that make the thousands of products it sells in Canada to cut the discount giant a break of at least 2 per cent on its wholesale costs.
Squeezing lower prices out of them would free up plenty of cash Target could use on a whole host of initiatives to, in the words of one expert, “re-launch” its Canadian chain of 130 or so stores after a wobbly start out of the gate.
Marketing, store renovations and inventory management could all be bolstered, experts suggest.
But the biggest use of the proceeds may go into lowering prices for shoppers, some say – a move that would help reverse the perception that Target Canada is overpriced compared to its U.S. counterpart.
Here’s 5 reasons why Target is looking to squeeze discounts from suppliers.
1. To lower retail prices
Consumer perception is hugely critical to success, and since its launch in the March 2013, Target has suffered from shoppers complaining about higher prices in Canada versus what’s found in U.S. stores for comparable goods.
“They have been plagued by this perception among consumers that they are overpriced,” Doug Stephens, a retail analyst and principal at Retail Prophet in Toronto said.
Stephens and other experts say Target is competitive with Wal-Mart’s prices in Canada, but it hasn’t been able to shake idea it’s overcharging Canadian shoppers on some items or categories.
Savings gleaned from suppliers could be flowed back to its own customers, experts suggest, especially in key “skews” or categories that will attract more foot traffic, like home decor and grocery items.
2. Addressing inventory issues
Target Canada’s biggest headache however has been supply chain issues. Getting the right products from distribution centres to stores in a timely way has proven to be a daunting challenge, experts say.
A less-than-enjoyable store experience for shoppers staring at empty shelves has helped fuel other woes, like the rankling over some prices, according to Stephens.
“[Target] left the door open because they didn’t execute well in terms of the whole store experience,” he said. “They left the door open to complaints.”
Plowing more cash into ironing out kinks in the supply chain is a definite priority for Target Canada’s new leadership team.
3. Marketing reboot
Target swapped its former Canadian head for company veteran Mark Schindele in May. Schindele has spent his time since evaluating how best to win back many disappointed Canadian shoppers, and now it’s time to start doing that.
Lower prices is perhaps the biggest lever at Schindele disposal, but getting the message out is arguably just as important, experts suggest.
WATCH: Could Target be contemplating an exit from Canada? Vassy Kapelos reports.
4. Copying the competition
Canadians retailers like big grocery chains such as Sobeys, have similarly gone to suppliers seeking lower wholesale prices this year.
The reason? Well, to help generate higher earnings, but with competition tight among big retailers — especially among grocers — profit margins are already thin, experts say. If Canadian suppliers are accepting new terms from Target’s competitors, it is hoping it can win similar concessions.
5. Doing it without parental aid
Target Canada’s U.S. parent has already taken at least a billion-dollar operating loss on its Canadian expansion efforts. It likely isn’t keen on continuing to burn through cash at that kind of rate. Schindele will want to show that Target’s Canadian operations are capable of sustaining themselves and make their own way.
“They’re not going to go to the U.S. parent again and go, ‘Look we need another billion to relaunch these stores,” Stephens said. “They’re going to their suppliers and demanding it.”