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Target's Canadian folly

March 10, 2014

With last year's entry into Canada contributing to nearly a $1 billion loss, Target's missteps to some are adding up to a textbook example of what not do to when expanding internationally.

At a breakfast meeting last week discussing "The State of the Canadian Retail Market," Antony Karabus, president of Hilco Retail Consulting, said that like several other U.S. chains over the last six years, Target assumed moving into Canada was just like expanding to the next state over in the U.S. He remarked, "Many retailers thought it was going to be easy. They could show up, open their doors, and it would all be great."

Mr. Karabus pointed to several missteps by Target, some self-inflected and some less so:

1. Underestimating the competition: Both Walmart, with 450 stores, and Costco, with 90 stores, are significantly more penetrated in Canada than the U.S. With most of its stores less than 20 years old, Walmart's Canada locations are also fresher than the majority in the U.S. Canadian Tire also is a strong force. In addition, competitors had 18 months to upgrade their approaches before Target's arrival.

2. Bad real estate: The acquired real estate from Zeller's "wasn't great" and structurally didn't fit the familiar racetrack design defining the Target shopping experience in the U.S. Relatedly, Zeller's red/white color scheme was too similar to Target's, which Mr. Karabus viewed as "small but not trivial."

3. Too many stores: Opening 120 stores in a year or less was "way too fast."

4. Understocks: Well documented, supply chain challenges led to empty shelves and low stocking of products that apparently continue in many stores.

5. High prices: Target has acknowledged its Canadian prices are slightly higher than those in the U.S. because of higher transportation, labor and other costs, but noted they're competitive with low-cost Canadian rivals. Canadians were still miffed.

6. Underwhelming brands: While partly due to its Canadian stores being on average 18 percent smaller than those in the U.S. and also due to understock issues, Target Canada's selection was seen as more sparse than its U.S. stores. Said Mr. Karabus, "In the U.S., you never get disappointed when you go there."

In an interview with CNBC last week, Target CEO Gregg Steinhafel concurred that the competition has "upped their game" over the last two years.

Said Mr. Steinhafel, "They've cleaned up their stores. They've added more service. They've lowered their prices. They got better. We're going to have to get better."

Many U.S. chains are doing well in Canada — citing Maurices, Justice and Pea in the Pod — because they are bringing something new to the Canadian marketplace, said Mr. Karabus. Nordstrom is also expected to do well, given its relatively few luxury competitors.


Discussion Questions:

What lessons does Target's challenged entry into Canada offer other retailers looking to expand outside the U.S.? What steps should Target be taking to shore up its Canadian business and win back consumers in that country?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What is the primary reason for Target's problems in Canada?


In my opinion, Target can't do much because the biggest issue is "Bad Real Estate." They took distressed Zellers sites with terrible locations. It reminds me some of Tesco's Fresh & Easy entrance into the USA. Instead of building and opening stores one at a time to see if they work, they just opened a bunch of them in short order in bad locations and soon failed.

Most likely Target will just pull the plug. I think Target should have built the stores from the ground up like in the USA and opened one at a time.

David Livingston, Principal, DJL Research


In my experience of doing lots of international work, the biggest challenge companies (both retailers and manufacturers) need to overcome is that the world is different in other places. A long time ago, being an American company or product was an invitation to print money. Not so much, anymore. Target clearly failed to deliver to this market, possibly without a "reason for being" other than being American.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

Too bad you didn't have an "all of the above" selection. Honestly, I think Target is losing a step in the US as well. It's just masked here for a variety of reasons, but more obvious when the company is coming in as a "new kid."

Unique, affordable products will get people into Target. Always has. Tide is not the answer, and honestly, relative to loyalty, neither are groceries. I get that groceries are a customer-magnet in the US, but I don't believe you can build a new mass merchant with that as a core offering.

Can't comment about the real estate, but I trust David's opinion.

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Paula Rosenblum, Managing Partner, RSR Research

A little more than a year ago, I wrote that Target would try to focus on product assortment, in-store merchandising, shopper engagement, promotions and pricing (pretty much in that order) to differentiate itself from Walmart Canada and other competitors. A top point emphasized by Target Canada management was that the product and promotion mix and the merchandising sets will not be direct imports from the US, but will be "Canadian-centric." Another was that the retailer planned to make great use of social media to spread the word.

In each one of these objectives, Target has fallen short. They missed the boat on product assortment and in-store merchandising; it's just not that different from other retailers and is often more expensive. Shopper engagement has been hit or miss according to several consumers I've talked with, including my cousin who loves to shop Target when she's down here. Last, and perhaps most telling, despite 1,200,000 likes on Facebook and more than 110,000 followers on Twitter, Target Canada continues to trail competitors on social media.

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Ron Margulis, Managing Director, RAM Communications

Rule #1 for expanding outside the U.S: "You can't copy and paste" what you are doing in the U.S., even to someplace as close as Canada. Canadians are not Americans and Americans are not Canadians. The business must be approached differently. Canada has a different country culture, consumer culture, and business culture than the U.S.

If Target fixes items #1 through #5 and do not face cultural differences between the countries, they will continue to fail. Studies show that when every element of an international program is right, still 50% to 70% will fail for cultural reasons alone.

Kai Hammerich, author of "Fish Can't See Water," predicts that "the soft underbelly of the U.S. economy" is U.S. companies inability or absolute refusal to understand and adapt to culture in other countries," and therefore their inability to grow with the rest of the world.

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Gene Detroyer, Professor, Independent

All together...follow along with Peter, Paul & Mary - "when will we ever learn, when will we ever learn?"

It may be as some have suggested that we can soon add a verse to the song: "Where have all the Target's gone, long time passing..." Ah the American ego always knowing what's best for the rest of the world. And those unsophisticated Canadians - heck their first store traded blankets and beads for animal pelts. Surely they'll be grateful for any US crumbs that come their way.

Some day we'll realize that ANY country outside of the USA is a DIFFERENT country. My advice is this if you're in charge of international expansion: If you're looking at Canada don't even think about it until 1) you know the sheer delight of a Canadian Tire store, 2) know who Tim Horton was, 3) know the value of a loonie, 4) stop telling "eh" and 'ahboot' jokes and 5) have had Rid River cereal for breakfast.

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Ian Percy, President, The Ian Percy Corporation

Target would need a 200% effort in order to overcome the negativity associated with Zellers. The competition, assortment, brands, and inventory levels are insignificant compared to the location problems. Try to imagine Canadian Tire taking over failed Kmart locations in the states.

Hy Louis, Tea buyer, Wong Imports

Target is learning some costly lessons, most of which could have been avoided with some good research.

First lesson, the Canadian market is quite different from the US market both in terms of shoppers and competition. Second, if entering the market by acquisition of a struggling business (Zellers) it would make sense to start by opening a few stores in best locations and then decide to open others or sell off real estate. Third, you must have your supply chain in order as any negative first impressions will have a sustained impact. Fourth, Canadian shoppers will quickly know if your pricing is not aligned across the border as 80%+ live within 161 kilometers (100 miles) of the US border and they are professionals at shopping both sides of the border. Finally, I don't think that Target did their due diligence in really understanding one key competitor, Canadian Tire, a company who's merchandise offering is far more similar to target than the name would suggest and that has an incredible ability to address a very local market and adjust to competition quickly based on their unique business model.

Bottom line, I think there is a place for Target in the Canadian market, but misteps are going to make it a challenge to move forward.

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Verlin Youd, Managing Principal, Verizon

Target's biggest failure was really misunderstanding the market. Entry into any market means understanding the customers, their expectations, competitive environment, etc. Target saw an opportunity to expand rapidly and took it, without the knowledge necessary to do it well.

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Steve Montgomery, President, b2b Solutions, LLC

Target blustered into Canada bringing little new to a consumer environment already being served well enough. Target's expectations (and prices) were higher than its delivery in its stores.

Lesson that should have been learned: Me-too doesn't create a preferable presence. It seems Target has a higher view of itself than do Canadian consumers.

For Target to shore its Canadian business, it not only has to find its mojo but it must also budget additional loses before it creates something better than now exists north of the border -- in a different country. Perhaps Target should have stayed home and minded its business in the USA, which also could use some arousal.

Gene Hoffman, President/CEO, Corporate Strategies International

The company had long been bureaucratized by a former leader with a strong sense of direction and an innate understanding of consumer desire. (Think Steve Jobs style.) With strong and accurate direction, the organization becomes process driven rather than consumer driven.

New leadership has inherited the process, but not the innate sense of consumer desire. Although the love song might still be sung, the consumer honeymoon has ended.

This will work as long as things run smoothly and there is no change. When a crisis occurs like the credit card breach, the process is to manage it. Consumers were not alerted to the full and fastest extent because they were not first of mind. When things change, the existing process can't handle it without strong accurate direction from the top. One would assume that the same processes used for US growth were used for Canada. They could not or did not change.

Target has been stumbling. Either the company needs a new leader or a reorganization before it falls down.


I believe this is only a symptom of Target's problems. Look at this fashion plate. They have taken to preening and thinking they can do no wrong. Their recent track record reflects an organization that has lost touch with its mission and its methods. They place flash above substance, and PR above actual work.

Retail is especially difficult and requires a super focus on the basics of training, buying and merchandising. Target seems to have taken much of this for granted. Just because it was right yesterday doesn't mean it won't fall apart tomorrow. No amount of "brand strength" will insure success.

Ed Dennis, Sales, Dennis Enterprises

They should have expanded slowly and organically the way they have in the states. These stores they bought were obviously not up to par with a typical Target and the customers up there caught on, saw higher prices to boot, and obviously did not respond well.

This has various repercussions on Target.

Fixing this distracts them from the states which Target may not be doing as well in as they'd like people to believe.

For Canadians who previously crossed the border to shop Target, this may change their habits should the stores in Canada close.

The issues with out-of-stocks are inexcusable. This company has a great inventory system and process and that should not have been a problem.


Fire, ready, aim seams to be the process at Target. I still don't understand the deal for Target to outsource the food distribution to Sobey's, a direct competitor.

Jim Bray, sales, Irisys

Having read Mr. Karabus' list, and the comments that followed, my thought is given that all these factors were known - or certainly should have been - how did Target hope to succeed? Perhaps they thought the brand alone would generate enough pull; that it doesn't may be testament to overconfidence or the brand's decline, or both.


In the U.S., Target is a brand. In Canada, Target is a store that has brands. The former has allowed Target to get away with style over substance for a few years in the U.S. (for now), the latter made Target a commodity the day it landed up North. Target assumed its brand cache would magically convey.

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Carol Spieckerman, President, Spieckerman Retail

Several reasons present problems and Target should have anticipated some of those. They MUST have known -- or should have toured and discovered that the Zellers locations were not top rate -- and a LOT of second rate locales! Also, the out-of-stocks are just SLOPPY -- not really excusable. Their distribution system should have been complete or solid before opening. Lastly, ASSORTMENT is SO important. Come on! They CAN do it SO WELL! Focus!

William Passodelis, associate, ML Co.

Great article and comments. What I have not seen anyone here mention is that all the Canadian women I know who have been to US Target stores LOVE them - they view Target as a friendly, clean discount store with great selection and prices. In addition to all of the issues identified, I think what has likely led to such a high level of disappointment with Target amongst Canadian shoppers is how high their expectations were in the first place.

Alas, when Target entered by buying into the dilapidated and unattractive Zellers stores, under-invested in the website, had higher than expected prices and ran into supply shortages, the brand experience for Canadians was not only short of their expectations for any store, but all the more so for a retailer brand that had been put on a pedestal because of its US store experience.

What steps to take? I think the issue is resolvable, but the question is how much Target is willing to invest to fix it, and how long they are willing to try. They will likely need to shutter a number of stores, choose new locations and set up stores that more closely replicate the US experience, launch a reliable website that consumers can use to verify products and pricing before they go to the store, lower prices, and more. I am sure Canadians will be willing to forgive the initial missteps, but it remains to be seen how committed Target is to Canada as a growth market vs its other opportunities.

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Alexander Rink, CEO, 360pi

Being in close proximity to the Target headquarters, it's often easy to underestimate the supply chain challenges that one would face in terrains like Canada.

With the competition going a notch up in the game when localizing their stores, Target's bad locations had nothing much new to offer in limited space.

Few steps that they could take:

1. Fix the supply chain first.
2. Localize - Canadians are highly diverse lot.
3. Compete on Apparel with brands.
4. Differentiate on experience.

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Shilpa Rao, Practice Head - Merchandising, Tata Consultancy Services

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