Latest / The Operator's Manual with Fexingo: Daily Decisions, Tactical Wins, and Business Execution / How a Single Inventory Mistake Cost Target 20 Billion
Transcript
- Lucas: So today I want to drill into a failure that's almost textbook now—but the real lesson isn't the one most people take away. Luna: I'm guessing you mean Target's Canadian adventure? Lucas: Exactly. In 2013, Target announced it would open 133 stores across Canada in less than two years. By early 2015, they were gone. They wrote off five point four billion dollars. And most postmortems blame the pace—too fast, too aggressive. Luna: Right, the classic 'they grew too quickly' narrative. Lucas: But I think the real culprit was something more mundane and more instructive: a single inventory planning error. Target assumed Canadian shoppers would buy the same things Americans buy. So they ordered the same product mix for the Canadian stores. Luna: And that didn't work? Lucas: It didn't. Canadians bought different sizes, different brands, different seasonal patterns. For example, Canadian households tend to buy larger pack sizes of pantry staples because shopping trips are less frequent in winter. Target stocked American-size packages. So shelves had stuff nobody wanted, and stuff people wanted was never ordered. Luna: That sounds like a demand-forecasting failure at the most basic level. Lucas: It is. But the interesting part is how it cascaded. Because the inventory was wrong, stores had two problems at once: overstocks of slow-moving goods and stock-outs of popular ones. That meant revenue was lower than expected, but also that markdowns were higher. Luna: Double hit to margins. Lucas: Right. And then the operational fixes they tried made it worse. They started shipping products from U.S. distribution centers to Canada by truck—which is expensive—and they kept changing the product assortment reactively. By the time they realized the depth of the problem, they had already burned through hundreds of millions. Luna: So the core mistake was assuming a market that looks similar—same language, same continent—would behave identically. Lucas: Yes. And it's a mistake that's surprisingly common. When Walmart entered Germany, they applied American management practices—like requiring employees to smile at customers—which German shoppers found odd and even invasive. That cost them billions too. But Target's case is especially instructive because it was purely an inventory and supply chain problem. Luna: Right, they had the brand recognition, the real estate, the capital. They just filled the stores with the wrong stuff. Lucas: Exactly. And I want to zero in on one number: Target had projected that Canadian stores would generate about 300 dollars in sales per square foot in the first year. They actually got about 139 dollars per square foot. That's less than half. Luna: Half. That's brutal. Lucas: It is. And it traces directly back to inventory. Because when you have the wrong products, foot traffic turns into empty baskets. Customers walk in, don't find what they need, and leave. Repeat that enough times, and they stop coming. Luna: So the inventory mistake didn't just hurt margins—it killed demand itself. Lucas: Exactly. And that's the lesson I think operators should take: inventory accuracy isn't a back-office metric. It's a customer experience metric. If your inventory is wrong, your customer experience is broken, no matter how nice your stores look. Luna: So what should Target have done differently? Not expand at all? Lucas: I think there's a smarter path. They could have started with a pilot—maybe 20 stores in a single province—and used the first year to learn the local demand patterns. Then scale the assortment that works. Luna: But that would have been slower. And Wall Street loves fast growth. Lucas: It would have been slower. But it would have saved five billion dollars. And honestly, investors now would rather have a profitable 50-store chain than a failed 133-store one. Luna: Yeah, hindsight is 20-20. Lucas: Let me give another concrete example. One of the specific mismatches was in apparel. Canadian women buy more plus-size clothing on average than U.S. women. Target under-ordered plus sizes and over-ordered standard sizes. So they had racks of unsold small and medium tops, while larger sizes sold out immediately. Luna: And the customers who couldn't find their size probably didn't come back. Lucas: And they didn't. By the end, Target Canada was generating about 60 percent of the expected revenue per store. That's a huge gap. Luna: What about the supply chain itself? Weren't they using a new distribution center in Canada? Lucas: They built a distribution center in Milton, Ontario, but it was designed to handle American-style pallet configurations. Canadian suppliers often use different pallet sizes. So the warehouse had to break down and rebuild pallets manually, adding cost and time. Luna: So the supply chain was mismatched on multiple levels—product, packaging, logistics. Lucas: Exactly. And when you compound these mismatches, the operational drag becomes overwhelming. Target Canada's operating loss in its final year was about two billion dollars on revenue of roughly three billion. That's an insane loss margin. Luna: It's hard to believe a company as sophisticated as Target could make such basic errors. Lucas: I think it shows that sophistication in one market doesn't automatically transfer to another. Target's U.S. supply chain is world-class. But they tried to replicate it wholesale without adapting to local conditions. Luna: So what's the one takeaway for someone running operations today? Lucas: I'd say: never assume your inventory model works in a new context until you've tested it at small scale. And measure inventory accuracy relentlessly—not just fill rates, but whether the right products are in the right stores. Luna: It's funny—this podcast is ad-free, and we like it that way. But a couple of dollars a month from listeners is genuinely what keeps these shows going. If you've ever gotten something useful out of these episodes, you can support at buy me a coffee dot com slash fexingo. It makes a real difference. Lucas: Totally. And to close the loop on Target: the deeper lesson might be that operational discipline matters more than strategic vision when you're scaling. The vision was fine—enter Canada, replicate the U.S. model. The execution was flawed at the inventory level. Luna: So inventory isn't just a logistics function—it's a strategic one. Lucas: Exactly. And that's why we talk about it here. Thanks for listening.