Sarah Kaplan, Rotman School of Management, @sarah_kaplan
Target Corporation, one of the US’s most successful retailers just announced today that it’s 2-year long effort to replicate that success in Canada has failed. After billions of dollars of losses, several changes of management and heroic hard work on the part of the 17,000 employees of Target’s Canadian arm, they are closing down operations. This loss will be extraordinarily costly: they must compensate workers, unload their leases and retrench. But, their press release this morning said that they did not have a scenario in which they could reach profitability before 2021.
Why did this happen? Before Target came to Canada, most retailers here were quaking in their boots. Most consumers were eagerly awaiting the arrival of “Tar-jay.” Here are some ideas about why:
Canada is not the 51st state
As an American immigrant to Canada, I think I can say this. Canada is more foreign than it looks from south of the border. Target misjudged the shoppers and the retail environment. Shoppers in Canada simply haven’t adapted to “Everyday Low Price” (EDLP) which many discount US retailers use as a primary strategy. Canadian’s love to “shop off the flyer,” seeking out the particular “loss leader” discounts that retailers use to entice them into the stores. Even Walmart which is the king of EDLP hasn’t fully been able to use the strategy in the Canadian context. Further, Target didn’t understand the needs of the Canadian consumers very well. For example, they stocked cotton winter coats in stores in the Prairies when winters there demand down puffy coats instead. They had to reformulate all of the dairy products to conform with Canadian standards.
Logistics is everything
In retail logistics is everything. If you don’t have the product on the shelf, you can’t sell it. Target had terrible problems with out of stock items, often having whole shelves empty. If a parent goes to Target with her kid to get Legos and that shelf is bare, she’s not likely to come back to that store again soon. Target never worked out the kinks in its relationship with its third party logistics company, often struggling with IT problems such as mismatches in bar codes.
Shopper’s were disappointed, even outraged
Target had two kinds of potential customers in Canada: those who had shopped in Target in the U.S., loved it, and couldn’t wait for Target to come to Canada; and those who didn’t know much about Target. For the potential loyalists, the out-of-stocks, poor pricing and different assortment of products really let them down. When a consumer has a relationship with a brand, she is especially likely to be outraged when the brand lets her down. For those other customers, they might have gone into a Target to check out the new shopping option, found it to be lacking and never went back. Maybe not outraged, but definitely not likely to step back into the store.
Walmart, Loblaws and other competitors did not just sit around waiting for Target to come to town
Target gave the competition a lot of notice, and in that time, the competition stepped up its game. Walmart accelerated its move into groceries and SuperCentres, Loblaws honed its skills. The competitors thought Target would be tough competition, so they pre-empted the threat.
Biting off more than it could chew
Finally, Target made many missteps in opening the new stores. They are not generally known in the U.S. for being skilled at store openings in new areas (unlike Walmart, which can open 20 stores per month in the US). That capability is essential when you then go abroad. Also, unlike Walmart who bought Woolco’s and slowly converted them while keeping the store open, Target bought 120 Zeller’s leases and closed the stores for 6 months while they converted them to the Target format. Doing that for 120 stores in such a short time frame is nearly impossible. Their failure is not so much a failure of store location as the fact that regular shoppers got out of the habit of going to that location to shop. As a further complication, Zeller’s had previously, in its attempt to revamp its struggling operations, adopted the Target red and white color scheme. So, Target’s branding which is so distinctive in the U.S. was not so special in Canada.
Could they have stuck it out?
Target was in a tough position. Closing operations will be costly, but losing money through 2021 is also costly. Target has been struggling in its operations in the U.S., in particular after the extraordinary data breach a year ago. They need to retrench at home and dealing with a Canadian headache probably does not make much sense.
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