TARGET CANADA : FAR FROM A BULLSEYE

When Gregg Steinhafel, chairman of Target Corporation, announced that Target will be expanding to Canada and launching in 2013 made, it seemed like a no brainer. After all, it made all the sense in the world to enter a retail market valued at $467.8 billion and still growing at a healthy annual rate of about 1.2%. They had their sights set, their customers eager and even their competitors scrambling in preparation. So, what went wrong? How did they bottle this?

Target is a well-known brand in the retailing global market (6^th globally in 2012), particularly in the United States of America, where it has been in fruitful operation for about 119 years. Needless to say it has survived this long by conducting good business. In its years of operation, Target has stayed faithful to its slogan, “Expect more. Pay less” (keep that in mind) and has never really faltered in providing a variety of quality products to its customers at discounted prices. Unsurprisingly, like their biggest competitor (Walmart), they decided to expand to neighbouring Canada where their brand awareness at the time was an impressive 92%. They certainly had the capacity to occupy a favourable, competitive position in the Canadian retail industry but their entrance was certainly a bold one by all counts.

The Launch of Target Canada

The company paid $1.8 billion for the lease of Zellers (a Canadian retail chain that was dying out) and launched 125 store locations as well 3 Distribution Centres by 2013. They also employed 17,600 Canadian residents. All of their other expenses (and they are note-worthy) can be summed up as ambitious investments. Unfortunately, their ambition might have caused them to underestimate the gravity of this momentous move and gloss over what would become a significant hurdle in their race to conquer the Canadian retail industry.

What went wrong?

• Supply Chain Challenges:

Target Canada, soon after launch, began struggling with the transportation of inventory from it distribution centres (DCs) to its various stores. They just weren’t moving fast and often enough. With only three DCs built to service 124 stores, the shelves were often scanty and lacking variety WHILE the DCs were overwhelmed with inventory.

• Poor Location:

To leverage on the numerous store outlets available to them and save time on location scouting, Target acquired Zellers and immediately started moving their things in. Unfortunately, Zeller’s store models were not in any way suited to the Target brand and this did not seat well with the customers.

• Non-competitive Prices:

Another thing that isolated their consumers was the high prices of their products. This directly contravened their mantra of providing quality and discounted prices. The eager public was disappointed to find a 14% increase in price from their American stores.

Target also underestimated the pull of Walmart in Canada. They certainly didn’t do themselves any favours by having prices that their major competitor could compete with at no stress.

• Poor Management:

Contrary to the US standard, and due to the time strains, new recruits were only trained for a few weeks, and then made responsible for handling stocking systems. This was a nightmare as over 70,000 different products had to be entered manually.

Would you advice the new CEO of Target Corporation, Brian Cornell (the other guy was fired of course) to stay in Canada, weather the storm and bring Target to a more profitable reality (which, according to rough estimates, will not happen till at least 5 years after its launch) or count his losses and move out of a ripe market? If you come to a decision please leave a comment or a private message. I might be presenting tomorrow and I need all the help I can get.

 T for Thanks.