Expect more? Empty shelves frustrate Target customers, execs

Ann Hendricks loves to shop Target but she is increasingly disappointed with the store in St. Paul's Midway neighborhood.

Too many times, she says that store is out of the milk, coffee, bread, pasta and other staples she wants.

"There's nada in those shelves or in those refrigerator units," Hendricks said as she shopped recently at the Lunds & Byerlys store in downtown St. Paul, now her go-to grocery. At Target, "sometimes the whole section of cheeses is blank. There's nothing in there."

Lunds & Byerlys is better stocked, she added. "I've told the manager that if you can get this, this and this, I'll never have to go to Target."

Hendricks' comments are the kind keeping Target executives up at night.

The Minneapolis retail giant once downplayed its problems keeping stores stocked with merchandise. Target CEO Brian Cornell now says the empty shelves are a serious problem that must be solved. Last month, he called the situation unacceptable and appointed veteran Target executive John Mulligan to find a fix.

Mulligan acknowledges the retailer's supply chain network has been struggling to deliver goods when, how and where customers want them.

"We've been asking our supply chain to move well beyond its original design and become more flexible in the way we serve our guests," he told analysts recently. "However, while we understand the reasons, the simple fact is that our current performance is unacceptable."

Target won't offer any measure of how bad its stocking problems are. Stocking certainly doesn't seem to be as atrocious as it was in Canada, where a failure to keep stores satisfactorily stocked contributed greatly to the retailer's failure north of the border.

Mulligan, though, conceded the company's supply chain isn't built to serve customers in stores and online. It's a challenge outside analysts also see.

The demands of Target customers online and those in stores differ significantly, said Mark Wulfraat, a supply chain consultant who has researched Target's supply chain.

"They have to please both masters," said Wulfraat, president of MWPVL International, a supply chain consulting firm.

"They've got the online customer who wants it immediately and then they've got the shopper in the store who wants to have the stock when they go there as well. So, now you have two separate supply chains that you now have to optimize inventory for."

The solution to Target's stocking snafus involves making sure everything in the supply chain is clicking, from stores accurately communicating what is or isn't on shelves and not letting shelves go empty when products are in a backroom to assuring Target's 37 distribution centers keep sufficient inventory and deliveries are made often enough.

"The devil is in the details," said K.K. Sinha, who chairs the supply chain operations department at the University of Minnesota's Carlson School of Management.

"You have to be able to forecast the demand and make sure all the systems are talking to one another and you have to work through the details," he said. "You have to sense and respond with respect to what's happening in every store in every different location."

Industry analysts say Cornell, who took the top job at Target about a year ago, cares more about keeping stores stocked, especially the grocery sections, than his predecessor Gregg Steinhafel. Cornell came from PepsiCo, where he ran the division that supplied Target and other retailers with Doritos, Ruffles and other snack products.

For retailers, excess inventory adds to expenses and cuts into profits. Target has traditionally kept lean inventory levels, so the challenge is to find the balance between keeping inventory down and shelves full or close to it, said Amy Koo, a retail analyst with the firm Kantar Retail.

"They are now saying it's too lean. I don't think they had a problem with it in the past, to the same extent," Koo said. "Target is really focused on profitability and, frankly, a lot of the items that are deemed unacceptable to be out-of-stock of are the basics. So, they don't make a lot money off of them."

Those basics, though, are what draw many shoppers, who may then buy clothing, cosmetics and other goods with fatter profit margins.

While Target has had stocking issues across many departments, food has been its primary problem. It has yet to master the grocery business, said University of St. Thomas business professor Dave Brennan.

"Target is not primarily a grocer," he said. "And that's probably one of the areas that needs greater attention, not just in terms of inventory but in terms of what is stocked and how deep and how broad of an assortment of products that they're going to have."

Target has been working on revamping its groceries approach, trying to improve stocking and focusing on good-for you products to help excite shoppers.

According to the Wall Street Journal, a survey by Kantar Retail found only about 20 percent of shoppers felt that the food Target sells is in sync with what they like to eat.

Brennan says Target must figure out how to keep its stores consistently well-stocked to keep customers like Hendricks from defecting to competing grocers.

"You got to be able to solve that problem so that that you can meet not only customer expectations but your sales and profit expectations," he said. "Otherwise your profitability, customer loyalty are going to deteriorate."