May 19, 2020

Target Misses the Mark in Canada

target
Retail
Michael Exstein
Credit Suisse
Joel Cuttiford
3 min
Target Misses the Mark in Canada

Target is on track to lose $2 billion on its Canadian operations within its first two years in the country, according to estimates from Tiburon Research cited in the Wall Street Journal.

The company has already lost $941 million within its first year of operations, a very bad showing considering past predictions that their Canada stores would be profitable by the end of 2013.  Some analysts say that the retailer may have to back out of Canada completely if it doesn’t turn around its struggling operations soon.

In May, the company’s then-CEO Gregg Steinhafel resigned abruptly, presumably due to the retailer’s massive security breach earlier in the year.  But some analysts attributed Steinhafel’s resignation to Target’s disastrous entry into Canada.  Upon Steinhafel’s departure, interim CEO John Mulligan said that the company was committed to staying in the country.

“Our focus on Canada is on fixing the Canadian business and getting it back on track where it needs to be,” Mulligan said in a statement. He also indicated that the company would not change its goal of reaching $6 billion in annual sales in Canada by 2017.  Sales in its first year totaled less than a quarter of that.

Opening 124 stores across Canada within ten months may have been too aggressive, leading to many of the inventory and training issues that the company faced.  Target reportedly trained its Canadian employees at U.S. stores, and when the employees returned home to begin working, they found that the technology and systems within the stores were completely different than those they trained on.  Inventory was apparently a serious problem for many stores.  One location didn’t even have enough products to fill the shelves on opening day, and customers continue to report empty shelves and a lack of product throughout the region.

Presently, Target is being pressured to close its Canadian stores and redirect its focus to the U.S. market.  Credit Suisse has made some projections and found that “We think it may be more prudent for Target to cut its losses and devote 100 percent of its resources on the U.S. — which comprises over 97 percent of the company’s current sales,” analyst Michael Exstein said.

Exstein estimates that if Target leaves Canada in 2015, it will incur US $3.5 billion in charges but generate US $1 billion in cash proceeds.  As a result, Target could see a ten percent dip in shareholder’s equity as well as the largest decline in free cash flow since 2007.

Some analysts disagree with Credit Suisse’s urgings, saying that leaving the Canadian market entirely will not be necessary.  Paul Trussell of Deutsche Bank told the Globe that the solution lies in closing its weakest stores.

“New management would need to come in and provide real measuring points... that will determine whether or not Target is truly positioned well for the long term in Canada,” Trussell said.

But Exstein considers that to be easier said than done.  “The turnaround would require fixing supply chain and stocking issues, investing in price, and perhaps most critical and difficult of all, repairing the company’s reputation in the eyes of the Canadian consumer,” he said. 

Target has yet to comment on their plans for the future.

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Tax
Compliance
financeleaders
Deloitte
Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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