Will a less is more strategy solve Target’s out-of-stock problem?

Discussion
Mar 04, 2016
Dr. Stephen Needel

Target has a big out-of-stock problem. It also has a plan to fix it. According to reports, Target’s latest solution is to shrink the variety of products it carries. The assumption is that carrying fewer items will make it less likely that empty shelves will appear in the chain’s stores.

Target’s approach is fascinating (the nicest word I could come up with). The company, according to Fortune, is “deploying workers to pour through the many categories of products it sells to see how many different formats and pack sizes of products like bottled water or soap it really needs to stock in its stores.”

The Fortune article continues: “The store will start by removing some items at one location, and then roll out to other stores in its 1,800-store fleet if it doesn’t face customer feedback.” I had to use the quote because I couldn’t make this up myself if I tried. Those who know that I research assortments for a living can just imagine my reaction.

This is not the only tactic Target is using. It is also trying to optimize case pack sizes in the belief that putting a full case of product on the shelf, rather than a portion of the case, will improve the out-of-stock situation. What they do with product already on the shelf wasn’t discussed, or whether they only re-stock when completely out of the product.

Target’s latest decisions raise three questions for me:

  1. In this day and age, is assortment complexity really the issue causing out-of-stocks and is a reduction in complexity the solution?
  2. Granting it is, would you bet on the workers in one store picking the right assortment? Would you bet that there are enough shoppers who would complain to ever overturn their decisions?
  3. Are they on the right path with reducing case packs? And will their vendors comply with that request, given that it may mean retooling their factories?

 

Target, Clark, NJ – March, 2015 – Photo: RetailWire

DISCUSSION QUESTIONS: Do you see assortment complexity as a major issue for Target and other food, drug and mass retailers? Where would you focus your energies if you were charged with fixing the out-of-stock issue at Target?

Braintrust
"This is one of the longest-lived retail stories of the past five years. A retailer with Target’s resources shouldn’t be struggling to know how many pallets of bottled water a given store will need in a given week."
"As much data is collected about consumers and as sophisticated as the algorithms developed to model shopping behavior have become, the sale still comes down to the vacillating nature of human action and interaction."

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26 Comments on "Will a less is more strategy solve Target’s out-of-stock problem?"

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Max Goldberg
Guest
1 year 9 months ago
Is this an early April’s Fool joke? While I salute Target’s desire to reduce out-of-stock problems and its desire to cut SKUs, the way they are going about it is all wrong. The number of SKUs has nothing to do with solving the out-of-stock situation that plagues Target and continually frustrates its customers. It’s a matter of correctly forecasting demand, particularly on items that will appear in the chain’s weekly circular, actually ordering 100 percent of forecast (something Target has been loath to do) monitoring actually sales (as opposed to sales associate opinions of what will sell), and preparing to… Read more »
Steve Montgomery
Guest
1 year 9 months ago
“Less is more” seems to be Target’s approach to solving its out-of-stock problems. I wonder what research Target utilized before determining this was the correct approach. For example, did they determine the issue was not labor or scheduling related, a space allocation problem, etc.? The list of possibilities is long. Today’s Chicago Tribune’s has an article on how Target adjusts for Chicago shoppers, discussing localization of it assortment. The article points out that this typically involves changing 3,000 to 4,000 items. It’s ironic that in the article Target’s spokesperson states, “its still a pretty hands-on process and wouldn’t be sustainable… Read more »
Tom Redd
Guest
1 year 9 months ago
Assortment complexity has always been a problem for many retailers. In some cases the solution was lowering the quantity of some items and having proven substitution items, so if a brand runs out the alternative will do — but the sale is still made. I would focus on simplifying the assortment and lowering the quantity. Some stores like Target carry hoards of stock on the shelves to cut down on re-stock time. I would allocate less to shelf and re-stock more often. I would also create a store team that helps figure out what items shoppers really want and assign them… Read more »
Cathy Hotka
Guest
1 year 9 months ago

This is one of the longest-lived retail stories of the past five years. A retailer with Target’s resources shouldn’t be struggling to know how many pallets of bottled water a given store will need in a given week. Given the prolonged publicity here, Target ought to put together the equivalent of the Marshall Plan to address it.

Ron Margulis
Guest
1 year 9 months ago
People are fickle. That’s where all conversations on out-of-stocks start and finish. As much data is collected about consumers and as sophisticated as the algorithms developed to model shopping behavior have become, the sale still comes down to the vacillating nature of human action and interaction. That’s not to say retailers shouldn’t try to understand the root causes of out-of-stocks, but rather they need to create a two-pronged plan to address the resulting situation. First is to work feverishly to improve demand forecasting, particularly for promotions. This comes in the form of better matching supply with demand. After all, what… Read more »
Bob Amster
Guest
1 year 9 months ago
With all the sophisticated software products in the marketplace to help retailers plan, predict, order, replenish, lay out and balance inventory between locations, I cannot understand this logic. It is beyond the realm of probability that these out-of-stocks exist because Target’s inventory managers don’t know how to use the tools — I am sure they do. A large number of SKUs cannot be the reason for the trouble in managing stock-outs. That is why we have computers running sophisticated software and not hordes of people using an abacus — to enable retailer to scale up! If such is the case, then the… Read more »
Kai Clarke
Guest
1 year 9 months ago

OOSs are an issue with all retailers, but it really reflects poor logistics and a poor systems approach to inventory management. This requires adhering to strong LEAN warehousing, distribution, management, logistics systems, processes and procedures in order to solve this. Using real KANBAN management and systems approaches, combined with a true JIT goal to inventory management and corporate integration is critical to moving forward with these issues.

Joy Chen
Guest
1 year 9 months ago

Target is trying to fix their out-of-stock problem without having to increase inventory carrying cost and labor expenses. With this as a criteria, reducing assortment to address out-of-stock is the right approach. Additionally, I would look at how best to move more products to stores vs. in distribution centers so as to reduce out-of-stocks. Finally, I would prioritize products that have low out-of-stock goals based on turn.

Mark Heckman
Guest
1 year 9 months ago
After attending this year’s NRF Conference in New York, one of my immediate takeaways was, how could there be so many large, sophisticated retailers still struggling with out-of-stocks given the technological solutions available to remedy the problem? From that reflection, I have come to the conclusion that the reliance on technology to solve these problems is in many cases making them worse, not better. For example, if a competent person were in charge of the frozen food department at Target, the out-of-stocks shown in the picture above would never exist. Retailers have an obligation to keep their shelves consistently full… Read more »
Gene Detroyer
Guest
1 year 9 months ago
We have been here before. Once upon a time this was Walmart’s answer. It only served to not provide customers with the products they wanted. Certainly assortment is a challenge. But cutting the assortment is not the answer. Or at least it is the wrong answer to this problem. The answer is in logistics and systems. Target was weak in this area 10 years ago when I was dealing with them. If you don’t solve the systems and logistics issues you can cut the assortment all you want and you will still have OOSs. Not only is plenty of data… Read more »
Rick Myers
Guest
Rick Myers
1 year 9 months ago
I would focus on the model stock by item and frequency of replenishment, not on the number of items at the store. Nothing turns off a customer more than not finding the item they have purchased at the store for years. Walmart tried SKU rationalization a few years ago with disastrous consequences. I’m not saying that they shouldn’t scrutinize the content of their assortment. If an SKU is not performing, by all means remove it. I like the idea of fitting a case of an item on the shelf. It reduces the need to move product back and forth from… Read more »
Robert DiPietro
Guest
1 year 9 months ago

Retailers always are rationalizing the SKU assortment — not a big deal. The 80/20 applies to retail sales, most SKUs do not have any velocity at all. The issue for Target out-of-stocks is that it poses a question: is it in the store and just not on the shelf (store execution issue) or is it not in the store (logistics/replenishment)? Two different ways to attack an out-of-stock issue.

I don’t think assortment complexity has anything to do with the OOS and using one store to determine the chain assortment is just crazy. Who is running Target — Eddie Lampert?

Brian Kelly
Guest
1 year 9 months ago
Maybe a different question. Is the assortment complexity the reason for out-of-stock? If it is, then assortment complexity is a MAJOR issue for Target. However, assortment complexity sounds like weather issues, a flimsy excuse in a modern technologically-enabled supply chain. Out-of-stock is an all-hands-on-deck initiative. If you’re not in stock, then you’re out of business. Target has a lot going on. Take a look at the past year’s Bullseye press releases. Cornell’s top priority and OSS fix has to be to keep all the new senior external hires, each with its own career-making initiative, on the same page. All the… Read more »
Li McClelland
Guest
Li McClelland
1 year 9 months ago

Yes I do see assortment complexity as an increasing problem shelf-wise and out-of-stock wise for most grocery retailers. It’s not so much the sizes but the excess of varieties taking up shelf space. I mean, do we really need seven varieties of Oreos or five varieties of Hellmann’s mayo or six flavors of Ritz Crackers when everybody always goes for the tried-and-true originals first and those are the packages that always seem to be out-of-stock? Carefully minimizing and curating the available choices is a reasonable approach which will serve both stockers and customers at Target. I hope it helps.

Joe Meszaros
Guest
1 year 9 months ago
Retail is not as hard as all that. Unless, of course, you try to “fix” stupid by deploying stupid. It takes diligence and manpower to keep shelves and freezers stocked. Diligence is tantamount to hard work. Who wants to do that (alone) for 10 bucks an hour? Accountants measure expenses, but seldom opportunity cost of inadequate staffing. I see the photo of empty shelves and I see massive lost revenue opportunity. You can’t bank margin on what the consumer can’t find to put in her cart. And case pack won’t solve the problem. Only good direction and sufficient staff to… Read more »
Robert Hilarides
Guest
1 year 9 months ago
Reading the Fortune article, I’d like to give Target a little more credit. The quote about “deploying workers to pour through categories … ” may imply local store qualitative decisions as you’ve described, but that may just be the writer’s means of making the complex assortment optimization process accessible to mainstream business readers. The quote could also describe the utilization of sophisticated modeling of variety vs. duplication done centrally but at a store level, tested in market and rolled out. Who could argue with that? They certainly don’t have the store level competence to make such decisions all of the… Read more »
Craig Sundstrom
Guest
1 year 9 months ago
Why is it that every time Target tries to “fix” something, I have even less confidence than before they announced their effort? (Answer: because it reveals just how incompetent they can be at very basic tasks I had never even thought about.) Whatever the merits of this issue may be — and I suspect there are many — isn’t an OOS a sign of having too little inventory? Or having it in back and not, you know, restocking it? Wouldn’t too much “complexity” result in unsold inventory, not the other way around? Sooner or later some of these understaffed companies are going… Read more »
Paul Sikkema
Guest
Paul Sikkema
1 year 9 months ago
I worked for Target from 1995 to 2000 and we never had an out-of-stock problem even though the Plainfield, IL store was one of Target’s fastest growing areas. That store had one person whose only job was to go around and check the out-of-stocks/about-empty and make sure the computer system had ordered the replenishment. You could look right on the shelf label to see what the min/max was. In addition to the full-timer the floor associates checked the shelves in their areas, ordered out of the stockroom and any staff could order an out-of-stock. The system worked well and you… Read more »
Justin Time
Guest
1 year 9 months ago

They definitely need a new grocery supplier. C&S doesn’t work for anybody who uses them. Now that Safeway has dropped them in the Mid-Atlantic, their stores are much better stocked and stocking occurs at fringe times. When I shop at Target, the stock crew is working during the day, and they stock what they get delivered. Change the supplier and most of their out-of-stock issues will go away.

Steve Kohler
Guest
Steve Kohler
1 year 9 months ago

Wow. I doubt narrowed assortments will satisfy customers, since CostCo already owns that space.

Christopher P. Ramey
Guest
1 year 9 months ago

There’s something missing here. It’s impossible to believe Target lacks the technology to master replenishment.

Arie Shpanya
Guest
1 year 9 months ago

It’s not about cutting down on assortment, it’s about predicting demand with internal sales data and historical trends. Why anger customers by reducing inventory instead of paying attention to what they’re buying and providing more of it?

Tim Moerke
Guest
Tim Moerke
1 year 9 months ago
Considering the well-documented* issues that Target had with their supply chain in Canada, and the considerable resources they have available, I don’t think a lack of technology is the issue. My guess is that there are either system issues that are leading  to the out-of-stocks, execution issues at store level due to lack of training or staff, or under-ordering at HQ to prevent overstocks and having too much money tied up in inventory. I don’t see assortment complexity as having much if any impact here. *If you haven’t done so already, I highly recommend reading “The Last Days of Target… Read more »
angiretlwire dixon
Guest
angiretlwire dixon
1 year 9 months ago
Let me share the comedy of errors with delivery issues that I lived through as a buyer at a large national off-price chain that had been purchased by a private equity company. The Ivy League consultants they hired wanted to improve the turnover rate for replenishment categories, so they had the “model stocks” reduced without the buyers’ knowledge. The result was out-of-stocks on the most popular styles. The problem was compounded by the fact that the truckers would only deliver a full truck load (which then took twice as long to fill with the smaller reorders). My advice for Target… Read more »
vic gallese
Guest
1 year 9 months ago

Yes! Assortment is one of the issues facing Target OOS. Coupled with that, they must revise the replenishment algorithms to meet demand with viable safety stock. Dock-to-shelf time and backstock replenishment are also opportunities that must be addressed in this effort.

Karen McNeely
Guest
1 year 9 months ago

Target’s are already so narrow that if they narrow them any further, they might as well get out of some businesses.

There is no excuse for massive out-of-stock issues on basics with today’s technology, or even technology from a decade or two ago. Determine the assortment and order levels, put them in the system and let the orders automatically generate. Yes there will be some discrepancies in inventories, and yes some models will need tweaking, but neither of these should account for major across the company out-of-stocks.

Stop making excuses and just start executing.

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Braintrust
"This is one of the longest-lived retail stories of the past five years. A retailer with Target’s resources shouldn’t be struggling to know how many pallets of bottled water a given store will need in a given week."
"As much data is collected about consumers and as sophisticated as the algorithms developed to model shopping behavior have become, the sale still comes down to the vacillating nature of human action and interaction."

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