Target Canada’s Demise? A Different Take

I’ve read one analysis after another, from the likes of Huffington Post, Business Insider, NY Times, The Globe and Mail, Financial Post et al, as to why Target decided to retreat from Canada. I resisted putting together this piece initially, because I thought surely someone would correctly diagnose the patient’s demise. A patient whose entry into the Canadian market was celebrated a mere two years ago, after a protracted courting period.

A courting period that went as far back as the late nineties and early 2000’s, when The Bay’s former Canadian management team first considered selling the Zeller’s chain. As a former business leader in the consumer goods market, we used to take bets on when it would happen, not if.

In hindsight, Target USA should have negotiated this deal 10-15 years earlier.

Beyond the Operational Setbacks

While issues such as out-of-stock inventory, higher Canadian pricing, slow sales, unnecessarily high number of stores launches in year one, a saturated retail marketplace and entrenched Canadian competition were often cited by most analysts as factors leading to Target Canada’s demise, I suggest many retailers have successfully hurdled similar barriers, with the passage of time, and patient, strategic steps.

Loblaws Canada has battled empty shelves for years while implementing new logistical systems. Yet seemingly it is delivers strong consumer sales and receives shareholder support in their efforts at expansion.

Walmart entered Canada in the mid 1990’s after buying Woolco’s 120 retail outlets, just a few stores shy of Target’s 124 stores. Many seemingly forget that Walmart faced its own challenges initially, and tried to offer a mix of local products and those found in their American stores. It’s success in spite of those early missteps centered on bringing a discernible low-cost brand to a marketplace devoid of such positioning.

As for Canadian shoppers, business commentators and every writer with a pulpit using the excuse of higher pricing at Target’s Canadian stores in comparison to it’s American outlets, have you bothered to check out other retailers’ price points for similar items in stores on both sides of the border?

Maybe because I lived and breathed that marketplace for 17 years and know it as I do the back of my hand, I know most retailers have higher prices in Canada. Yes, even Walmart. Go and check for yourself. It’s more pronounced in some categories than others.

As a brief aside, from the perspective of a supplier to the retail market, I can tell you that I never offered Walmart the opportunity to list the exact same item in America as in Canada, for this very purpose. I did not want my products to be compared by Canadian shoppers to those found in the same retailers across the border, because I literally couldn’t afford to offer, say Walmart, the same purchase price. My landed costs were considerably higher than my American counterparts for a multitude of reasons. So, I would list a different model here.

Now, is the market saturated? Yes and no. We have exhausted the marketplace from a desirable real estate standpoint, relative to the where Canadian population resides. Which is why Target purchased Zellers’ outlets. They were located, for the most part, where a general merchandiser such as Target, should be. They had a significant opportunity in the ever-consolidating pharmacy segment, to offer real competition to the Loblaws/Shopper’s Drug Mart conglomerate.

Yes, the competition was entrenched, but any marketer will tell you when you can present a discernible, differentiated, consistent brand and market positioning to consumers, any business stands a better than average chance at success.

But each of those four factors must be executed by the business entity and believed by the consumer. With Target’s established brand awareness, equity, positioning and loyalty amongst Canadian shoppers, the market space was theirs’ for the taking.

At launch-time, with their eyes on Wal-Mart Canada, Loblaws, Metro, Sobeys, Canadian Tire and Costco, Target Canada made what would become a grievous error. It failed to realize that their biggest competitor was, in fact, Target USA.

Not Walmart. Not Loblaws. Not Canadian Tire. Not Costco. It was Target USA all along.

Target vs Target

Target Canada couldn’t compete with the image, shopping experience, style, ambiance and service Canadian shoppers were accustomed to at Target’s American stores.

The bar was set high years ago, by the flock of Canadian consumers who crossed borders regularly to shop at Target America. Which is why I stated earlier, Target should have purchased the Zellers’ outlets in the early 2000’s, right around the time they started partnering with noted designers on exclusive product assortments in many departments. Canadian customers have a greater appetite for style than their American counterparts and would have welcomed Target’s exclusive assortments when no other retailers were entertaining such relationships.

Instead Target waited. Then fixed its eyes on the wrong ball.

They came in believing, as do many America retailers, that the Canadian shopper is an extension of the American one. I have always said the retail market is littered with failed American retailers and brands making the same assumption. I faced similar mindsets in the global companies I worked for, which is why I often welcomed my American colleagues to Canada and walked them through the differences in our market dynamics and the variability of Canadian consumer demographics, psychographics and buying decision trees. This new found understanding allowed them to support the decisions we needed to make for the Canadian market.

Someone at Target USA failed to do their market assessment and consumer research before investing in the initial Canadian market launch.

The Canadian shopper was so elated that Target had finally arrived, they lined up or drove clear across the city just to get into one. The Retail Rock Star had landed.

Before the first week ended, social media, analysts, the news, and shoppers’ forums were rife with complaints of tar-jay’s empty shelves, higher pricing, and a different assortment than one they were used to. Not at Walmart or Loblaw’s, but at Targets across the border. The shrill was ridiculous, and quite frankly often perpetrated by media, and I believe, the competition. Any marketer will tell you they would give their right arm for positive word-of-mouth testimonials to take to the bank.

In Target Canada’s case, the word on the street and on the net was disbelief. Disbelief that this was the same Target. The tar-jay they aspired to. The tar-jay they had waited years for. Had crossed borders for.

Yet, I do believe they were in the midst of turning the Canadian business around. Unlike the original group that marched in thinking they knew it all, the new Canadian management team was resolving the stocking issues, tweaked the assortment of product, adjusted pricing and was getting better at understanding the Canadian market’s cycle.

Target USA’s decision to pull the plug on Target Canada at this point had more to do with the cost of the hacking breach in 2013 and its impending lawsuits from banks and customers, as well as soft sales in its own domestic market. It faced pressure from Wall Street’s short-term focus, where quarters, not years, are the measure. Target opted to use the money the Canadian entity would have required, to protect its domestic market share through investments in online security and e-commerce, and to refresh its in store assortment and environment.

I wonder whether anyone at Target USA considers the extent of the loss of the Canadian shopper. Not only from its Canadian stores, but now, perhaps reluctant to cross the border to shop at Targets across the States.

One strategic blunder, the cost of which, beyond the obvious numbers thrown around in the press, may be played out for years to come.

So long Target. We knew you too well..

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Caroline Kalaydjian

In 2005, I left the corporate arena to assist small and medium sized businesses capture their vast potential. I encouraged owners and managers to incorporate agility, creativity, productivity and efficiency throughout their business operations. Today, I marry my concerns for (ethical) business, politics, socio-economics, youth advocacy, poverty, social justice, and geopolitics with my first and longest love, that of writing. Both as a freelance business storyteller, on Business Architect, and in everyday analysis on this site, I hope to shed light on the converging threads that bind society to the every-day impact of decisions made in the public and private realms.

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