Target low-balls Walmart in Canada
Canadians have had a lot of problems with Target since it first opened for business in their country in 2013. Aside from out-of-stocks, Canadians have been particularly peeved that Target’s prices in Canada have been higher than in the U.S. Now, however, Target has an independent source to assure consumers up north that its prices are not only in line with what Americans pay, but are lower than what Walmart charges.
According to a market basket study of 33 identical national brand products conducted by Kantar Retail, Target Canada’s prices were 3.9 percent lower than Walmart. Customers who paid for these goods with their REDcard would have paid 8.7 percent less than Walmart.
In the company’s second quarter earnings call, Kathee Tesija, Target’s chief merchandising and supply chain officer, said, "While both our own studies and external surveys show that we are already priced very competitively, the team has made decisive changes to ensure we respond even more quickly to pricing dynamics in the Canadian marketplace, including comparison shopping our prices versus competitors on more items more frequently, implementing enhanced tracking of competitor promotions to ensure we react quickly, and implementing a price match policy, which includes online and local competition with a more flexible process for guests."
Kantar’s findings may not be enough, at least not yet, to convince Canadians of the deals to be had at Target, where Robin Sherk, director of retail insights at Kantar, told the Financial Post, the chain faces an uphill battle.
Target does appear to be making progress in Canada. The chain reported sales had picked up substantially from the first to the second quarter.
Discussion Questions
What will it take for Target to convince Canadians who are no longer shopping it its stores that it has fixed its problems? Are you more or less optimistic now than earlier this year that Target can get it right in Canada?
Short-term, it’s an important tactic for Target to advertise its price advantage vs. Walmart, especially when using the REDCard. But this works only as long as Walmart chooses not to respond. History suggests that Walmart will not sit still for very long being beaten on price by somebody else.
Long-term, Target has a branding story to tell that helps differentiate itself from Walmart. It has the same challenge in the U.S. right now, and the new CEO recognizes that less focus on food and consumables will shift the spotlight toward Target’s core strengths. But before any of these steps can be put in place—short-term or long-term—the execution of in-stock rates must continue to improve.
Much more than a basket of only 33 national brands being priced lower than Walmart. Target could offer a price match, and I am sure they considered that, but they probably decided this wouldn’t be feasible from a business standpoint. I don’t think Target has the chops to get into a price war with Walmart, but we’ll see how this plays out.
Old retail strategy—make friends and then make money. Making friends is not possible if you can get them into the store and the universal way of doing that is via pricing. This is especially true if you are perceived as a “value” retailer like Target.
The other part of making friends is not disappointing them. Target did that by having higher prices than customer expected and, perhaps more importantly, having products out of stock. Someone might forgive you if your price is a little higher than anticipated, but when they made a trip to buy items and find that they are not there, that takes a greater degree of forgiveness.
Walmart will likely move to counter Target’s pricing claims but it won’t matter if Target doesn’t fix its out of stock issues. They will have exceeded most of their customers’ forgiveness quotient by making a dual promise they couldn’t fulfill.
It is not going to be easy for Target to do much anywhere this year. They might consider selling the Canada business to a local company like Loblaws, which might need better positioning against Walmart, and look to Europe, Dubai, Hong Kong and Shanghai for the future of expansion. Companies wishing to join in on the world market need to go where they can flourish instead of where the figurative competition is. Knowing your business and your customer demographics is where Target failed.
I think it will take a very long time as I would not expect the Canadians to forgive and forget anytime soon. I was in Canada when the first store opened and was shocked with how badly they had misread the Canadian market. Not only the consumers, but the press turned on them almost immediately.
What I had always thought was the smartest kid on the block had either become dumb and lazy, or perhaps it was just arrogance.
Competing with Walmart on price isn’t a winning strategy. Focus needs to be more on how Target can differentiate their offering based on their core strengths. Otherwise, Walmart will simply adjust on pricing and Target will once again be at a disadvantage.
Pricing, promotions and a Canadian-centric perspective on their stores and marketing. Canada is different from the USA, especially in Quebec and other strong regional provinces. Merchandising for these regional differences is critical for Target’s success.
Interesting. Most Canadians I know who love Target and could not wait for it to come to Canada were not specifically looking for the lowest prices, but rather a better shopping experience than Walmart. And yet, Target is focusing its message on how its prices are lower.
For Target to win in Canada, I think they need to resolve the core convenience and shopping experience issues that made them into such a desired brand in the first place for the Canadian market. Low prices are always welcome, but I think secondary in this case. They have improved their performance overall but given that I think they need to be focused on having the right price for their offering rather than the lowest price, I would have to say that their focus is slightly off, and thus I am only marginally more optimistic than I was a year ago.