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