Target struggles with bare shelves problem

Shannon Pettypiece
Bloomberg News

Target Corp. Chief Executive Officer Brian Cornell, who’s working to turn around the retail chain, is struggling with a problem that has plagued rival Wal-Mart Stores Inc. for years: empty shelves.

Cornell said on Wednesday that stores aren’t well enough stocked, a symptom of Target losing track of its retail fundamentals. He’s looking to improving “in-stocks” — a measure of how much merchandise is available for shoppers to buy — and refine the company’s supply chain.

“In-stocks in our stores have been at unacceptable levels this year, and our guests deserve better,” Cornell, a former PepsiCo Inc. and Wal-Mart executive who took the helm at Target a year ago, said on a conference call. The company’s supply chain has been stretched “well beyond its core capabilities.”

The situation is marring an otherwise-successful comeback bid for Target, which posted quarterly earnings on Wednesday that topped analysts’ estimates. To help fix the problem, Cornell has named Chief Financial Officer John Mulligan to the role of chief operating officer. Mulligan will take that job next month, and improving the supply chain will be his main focus.

The supply chain’s strain stems in part from a shift to online ordering. Target has been investing heavily in its e-commerce site and the ability to ship items directly from stores. It plans to have 450 stores that will act as online fulfillment centers by the end of the year. In doing that, the supply chain has been overextended, Target said.

The stock rose 0.7 percent to $80.87 in New York. Shares of the Minneapolis-based company are up 6.5 percent this year.

Wal-Mart CEO Doug McMillon also has identified stocking as a key challenge. At an event last year, Wal-Mart executives said resolving the situation could be a $3 billion opportunity for the company. McMillon’s push to improve the store experience at Wal-Mart has included boosting worker pay and increasing staffing levels.

For Target, the problem with out-of-stock items worsened in the past few quarters, Mulligan said on Wednesday.

“We have been asking the supply chain to move well beyond what it was originally developed for and to be more flexible in how to supply our guests,” he said.