Inside Target: How Buyers Game a Broken System
Hamilton Nolan
Profile
SEXPAND
Target, America's third largest retailer, has been the source of multiple recent leaks to us fromemployees at all levels detailing the company's myriad problems. Today: a detailed look at the life of a Target buyer, and how they game both vendors and the company itself.
Target was hit with a computer "glitch" this weekend that caused long delays at checkout lines across the country. It was just the latest stumble in a company that has fired its CEO, had its computer system hacked, and seen its Canadian division become a billion-dollar fiasco, all in the past six months. Target has problems. What's going on in that big red box?
Today, an employee inside Target explains in illuminating detail the company's buying system—what buyers do, how they cheat the system, who dislikes who, and what's wrong with Target's buy side operations. The employee also speaks on what they see as the general flaws in Target's corporate culture. It's quite interesting. Enjoy.
There are four types of buyers.Internals are those who started as a Business Analyst right out of college.Internal Externals are those who transferred from a department outside of merchandising.Experienced externals are those hired from another company, i.e. Macy's, JCPenney, etc.MBA Externals are those hired from business schools. They come in at the highest buyer level (17) and earn a six-figure salary. They generally do two buyer 17 rotations and are promoted to Sr. Buyer.It's common knowledge across the company that internals resent MBA externals. We view them as know-it-all arrogant hot shots who come in from out of state and jump the line to Sr. Buyer. MBA externals can become Sr. Buyers without ever doing a role in Merchandise Planning (i.e. inventory management). It's not unusual for internal Sr. Buyers to be more critical of MBA externals or to drive more/unnecessary workload, especially if they find out that the MBA external is making a higher salary, which is common. Sr. Buyers also have the power to subjectively lower their buyers' annual review score to prevent or lessen their bonus.It'll be interesting to see if Target continues to recruit MBA buyers now that [former Target CEO] Gregg [Steinhafel] is gone. He was an MBA external from Kellogg and the MBA internship program began under his tenure.Forecast: Buyers forecast once a month for the next three months. They must forecast sales, margins and markdowns by week. Each month, the Divisional meets separately with each team to review last month's forecast/performance, and preview the upcoming three months. Every Buyer forecasts as conservatively as possible in order to "beat" their forecast. It happens so often that it's internally referred to as "sand bagging." The reason is simple: if you beat your forecast, your Sr. Buyer and Divisional won't ask questions. If you miss your forecast, you are grilled to death in front of your team and viewed as not meeting expectations. If you ask any buyer, they'll tell you forecasting is a joke and huge waste of time. It takes up two weeks each month and is the most hated part of the buyer job.They're difficult because managers expect buyers to be accurate even though consumers are fickle, promotions constantly change at the last minute, unpredictable weather can impact sales, many other factors outside our control can affect sales and if you miss your forecast, you face tough questions from your sr buyer and divisional... Lately, sales have been so bad buyers aren't sandbagging, they're just reflecting the poor sales they expect. What's been frustrating is that Sr. Buyers keep telling buyers to be accurate but if we are, they say they don't like the "story" and make us change it. Then we raise our forecast, miss sales, and get chastised during the forecast meeting.Vendor Income: VI is money paid by vendors for things like promotions, in-store displays, ads, etc. Buyers are allowed/encouraged/pressured to find creative ways to get as much VI as possible out of vendors. Nothing is off limits. I've seen buyers charge for ads in the circular, in-store displays (internally called company space), for bringing in additional SKUs, for prime shelf placement, etc. There are no rules and buyers have free reign to charge VI whenever and however they want. VI goes into margin ie profit, which is why Sr. Buyers and Divisionals allow it. They simply turn a blind eye to how it comes in, even if the circumstances are questionable. I've seen buyers lie to vendors in order to get VI. The most common one is to tell a vendor that their competitor is offering say $25k to get a company space display but the buyer will give the space to that vendor if they match the offer. VI also allows vendors to offer better margins under the table. Many vendors cannot lower costs below a certain amount, so they'll offer VI to improve margins so they can tell their other retailer partners like Walmart that every one is getting the same costs. I'm sure collecting VI is perfectly legal but the lack of any policies and rules opens it to abuse which vendors would probably be furious about if they knew some of the things buyers do to squeeze out every dollar. [VI] is 10-12% of my category sales.Comp shop: Target has an entire team dedicated to comp shop. They send out shoppers to Walmart every week to compare prices. If an item is "comp shopped," it means Walmart has priced it lower and it is automatically dropped down to match it. Buyers hate being comp shopped because it compresses their margins. Most buyers are able to negotiate or pressure their vendors to give VI to maintain margins when their items are comp shopped. However, most of the time, the category takes a margin hit. When a buyer brings in a new item, they're supposed to check if that item is also at Walmart and what it'll retail at. If it's carried at WMT, they're supposed to report it to the comp shop team. Instead, most buyers "forget" to tell the comp shop team and feign ignorance when they're busted. Sr. Buyers also turn a blind eye to this because it boosts margin for their department, even if it's only temporary.Target doesn't allow team members to keep the miles when they travel for business. They use the miles to upgrade executives to business or first class. It's one of the many cheap things Target does.Target calls itself "Fast, Fun and Friendly." Each team has an FFF captain who is in charge of organizing fun activities for their team, such as frozen yogurt runs and happy hours. Other than FFF events, the motto is a joke. It takes forever to do anything at target. It's very bureaucratic and surprisingly hierarchical even though executives constantly say they have an open door policy. It's not fun when sales are bad because the pressure to increase sales is enormous. And the friendly is superficial and fake. Minnesota Nice at its best. Given the sudden firing of the CEO and the multiple rounds of layoffs, the credit card security breach, dot-com still hemorrhaging money, amazon stealing team members left and right, and Canada as a huge failure, morale is at an all-time low...Target has a Minnesota Nice culture. It's common to agree with an idea to someone's face, then criticize it behind their back later. It's common to be passive aggressive. Managers say they like it when subordinates play devil's advocate and express disagreement, but those who disagree are viewed as negative, poor team players, and uncollaborative. In other words, agree and support everything your manager says if you want to get promoted.Merchandise teams eat lunch together. Every day. Those who eat at their desks or with other friends are viewed as bad team players. The only exception is if you have a vendor lunch. Or it's Friday...Target claims to be family friendly, but it's not. They don't offer any paternity leave. There's no on-site daycare. Managers are not supportive of pregnant women or new mothers who want or need to work from home.Target claims to offer work life balance but that doesn't apply to merchandising. Buyers spend their entire day in meetings, then are expected to respond to hundreds of emails at night. In 2013, all buyers got iPhones from the company so that they could be reachable at night and on weekends.Work.different: This initiative was launched in 2013 to help team members be more creative and efficient in completing their work. Desktop computers were replaced by laptops. Desk phones were replaced with headsets that plug into our laptops. We now receive calls via Lync. The idea was that we can work anywhere and be accessible anywhere our laptop is. This didn't work out for buyers because managers were not open to buyers replacing meetings with phone calls and video conferences. Like many other great ideas, this one fizzled because management is resistant to change. This may have worked out better outside of merchandising but I do know that within merchandising, it was a bust.
Previously
For our full archive of Target reporting, see here.
[Photo: Flickr. Contact the author of this post at Hamilton@Gawker.com]
LoveandPie
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That's what Minnesota Nice means? I thought that behavior was just an American pastime. Sadly.
spidermann
Profile
As a West Coaster who moved to MN: Minnesota Nice is passive-aggressive at its core.
I've come to name the worst offenders The Lutheran Choir; the ones who will be nice to your face then destroy you when you're not around, spreading every rumor they can think of.
Minnesota is about the most false faced place I've ever been.
LoveandPie
Profile
The must have infected a lot of people, then. I guess I dodged a bullet when I didn't go to college up there.
Jerry-Netherland
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Being a buyer for a major Department Store chain has always been the juiciest gig in retail. I knew a woman back in the 1970s who lived like a queen as the buyer just for ladies casual wear for a major chain. Unspoken were the unlimited kickbacks, bribes, and perks that enabled her to live like Jackie O during a horrible 5 year recession, when everyone else was tightening their belts. Why would Target be any different from [rhymes with Lacy's]?
Blathering
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Okay, since I'm always the dumb one around here, I'll ask: I have no idea about how retail works. What does a buyer do? I mean, I know they meet with vendors to arrange for stuff in the store. But the mechanics of it elude me.
SarahJaneMay
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Buyers essentially forcast and 'guess' at what items will sell well in each region. They then deal with the vendors on cost/shipping etc. to get those items into the stores. They also get to deal with markdowns, vendor returns etc etc which isn't pleasant, and since they are essentially controlling the supply chain the kickbacks are amazing and salary is really good... unfortunately they're also the first ones who get destroyed if sales aren't met or their forecasts are wrong.
I have a degree in supply chain/logistics...it's a great field if you don't have a life.
They basically plan the assortment of products the store will have in their product category for the next year or so and what's going to be on sale when. They decide what kinds of products they want based on trends/consumer data/bullshit gut feelings/vendor meetings/holiday schedules/spying on the competition, decide how much to buy for the year, travel to China, look at the options available and negotiate deals, and manage the schedule of manufacturing and shipping to make sure everything is on time. They spend most of their time in meetings haggling with vendors and in some places also spend a lot of time on the phone with stores about their inventory and sales.
Blathering
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I think the "bullshit gut feelings" part is the missing piece in my understanding of the profession.
formerlydickmove
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That sounds like a pretty average buyer/planner role. Every company has the monthly forecast meetings, whether they call them MPC's, Open To Buy, or Forecast meetings. And buying is a very competitive world with tons of backstabbing (if all else fails, blame the planner). Some cultures are better than others...even within the same company. It all depends on the General Merchandise Manager and Divisional Merchandise Manager. They set the tone. The MBA external thing sounds like a crock of shit guaranteed to cause friction and bad feelings. But as bad as you might think it is, it isn't David's Bridal (12 hour days, six days a week...no systems) or Grace Nichol - era Victoria's Secret (every MPC meant someone was going to cry).
But it's retail. It can be better or worse by degrees, but they're all pretty much the same.
Mysticlights
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In my (smallish, beauty industry) division, I'm responsible for forecasting. It is hands down the worst part of my job. If I meet or beat my forecast, I bonus. If I lose, I have to answer for it and roll the red into the next month and play catch up. I have a quarter to make/break. If I'm in the red at the end of the quarter, it can be job-threatening (have never done that, that's how scary it is).
I have different resources I use for forecasting. Weather, news, economy, newness, community, season, etc. It's gambling, wizardry and cynicism combined together to (hopefully) get the largest bonus. I sweat it out 1-3 days a month and continue to edit the forecast until the final deadline. I can't imagine tackling forecast for a company as large as Target. I'd lose years off my life.
Chatham Harrison
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The fundamental problem with retail is that mid- and high-level managers will always be tempted to take the rain dancer over the analyst. The rain dancer may not perform any better than the analyst, but they show a real commitment and drive that the analyst can't match.
I can't recall, in my profession, the number of times I've seen predictions of declining business (due to weather, or the end of a major event, or a holiday) dismissed as defeatism and excuse-making. Then they get angry when payroll costs increase. There's no better cure for the myth of rational expectations than watching businesspeople at work.
Thebluefish
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Buyers for large businesses is a great discussion topic. I helped my father attempt to bring up some products to the nation, so I have a bit of experience with this. One thing that was failed to be mentioned here were the brokers, the "ex-buyers", what happens when a buyer retires.
So a buyer retires and leaves the company, however there aren't many buyers at a given time. Politics plays out and the buyer leaving the company is real good pals with the current buyers there. These "retired" buyers can in many cases become brokers.
An example is the startup that my father co-owned and that I helped during the process called Snap Capps (later to be bought out by big bully corporation, Telebrands). The general idea is that if you try to bring a product directly to a buyer, it just isn't going to work. They don't know you and they don't trust you. They have plenty of product coming through and they don't care to go through those loops. That's when you network around, find someone who used to be a buyer for that company. If they have ties with the current buyers, then they can generally get your product into the store for 10-25% of the net sale.
An example is the startup that my father co-owned and that I helped during the process called Snap Capps (later to be bought out by big bully corporation, Telebrands). The general idea is that if you try to bring a product directly to a buyer, it just isn't going to work. They don't know you and they don't trust you. They have plenty of product coming through and they don't care to go through those loops. That's when you network around, find someone who used to be a buyer for that company. If they have ties with the current buyers, then they can generally get your product into the store for 10-25% of the net sale.
A broker might bring in 6-8 products a year. However unlike the buyer, the broker is making money like no other. For example, at our estimated sales for Snap Capps (and based on sales trials at select stores), a broker for Wal Mart $150k-250k a month for instance. 6-8 products with similar margins a year coming into the store for 5-10 years or longer meant that they were the ones who really made it out with the cash.
lilmissstilettosandgrits
Profile
I'm a broker for a LARGE independent. We rep 60 lines. At 5% of net sales. We are talking pennies per item. It is cheaper to higher us than to have an internal sales force- We have a retail salesman in every single store in our territory once every 6 weeks. It's hella expensive. I am not a retired buyer, nor is anyone in my company. I can tell you the experience you had is unusual. You got screwed. There are some brokers out there that operate like this, but they are short lived and chains won't typically work with them anyway. Not to mention that a category manager for a large chain only works one category desk for a year before they are rotated- To keep the type of relationship you are mentioning from ever becoming a factor. Our lines use a broker because we are an independent sales force. We know the industry, and because it is commission sales, we have skin in the game. It has nothing to do with trust, and everything to do with the majority of folks not understanding how the business works. If we got in 6-8 products a year, we would be bankrupt. We get in 10-14 products per month, across all chains, and then continue to work them, promote them, and keep them in. We explain all of the investments that a vendor will be required to make to do business in a chain- And trust me when I say the entry barrier is HIGH. One well known SE chain requires a $20,000 per SKU slotting offer to even CONSIDER putting your item in stores. Small vendors can't pay it. They also don't have the capital to keep up with demand, so that slotting fee is there for a reason.
I don't know who you used, but I don't think it was a normal broker. If it was, this was an incredibly poor contract, and an atypical one at that.
Last, Wal Mart refuses to use all but a select few brokerage firms. They want firms that do things their way, and won't bring in every BBQ sauce made in a bathtub. I would be shocked if the broker you mention was actually certified to call on Wally World.
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