Target gives up on Canada
In today’s fast fail retailing world, few have failed as fast or as spectacularly as Target in Canada. After racking up losses in the area of $2 billion in under two years, the company has announced it will shutter its 133 stores north of the border and liquidate its operations there.
"After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021," said Brian Cornell, chairman and CEO of Target, in a statement. "Personally, this was a very difficult decision, but it was the right decision for our company. With the full support of Target Corporation’s Board of Directors, we have determined that it is in the best interest of our business and our shareholders to exit the Canadian market and focus on driving growth and building further momentum in our U.S. business."
Target struggled from the very start in Canada. Consumers complained of out-of-stocks and products priced higher than in the chain’s U.S. stores.
The chain took steps to get its operational act in gear and had also sharpened its prices heading into the Christmas selling season hoping to demonstrate it had connected with Canadians turned off by its initial effort in their home country. Back in September, a market basket study of 33 identical items by Kantar Retail showed Target Canada’s prices were 3.9 percent lower than Walmart’s, even without a REDcard discount.
Still, the efforts were not enough to convince Mr. Cornell and the company board to give Target Canada more time to succeed.
"The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests. We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance," said Mr. Cornell. "There is no doubt that the next several weeks will be difficult, but we will make every effort to handle our exit in an appropriate and orderly way."
- Target Corporation Announces Plans to Discontinue Canadian Operations – Target Corporation
- Why Target waved the white flag in Canada – The Toronto Star
- Top 5 reasons why Target Canada was an epic failure – The Vancouver Sun
- How Target Canada’s exit is like 15 malls closing at once for the retail world – The Financial Post
- Target to shutter all stores in Canada – USA Today
- Target lowballs Walmart in Canada – RetailWire
Discussion Questions
What is your postmortem on Target Canada? Will Target’s experience in Canada make other U.S. chains think twice before expanding northward?
There are well-documented execution issues—pricing, supply chain management and so forth—that don’t need to be rehashed at this point. The biggest takeaway is the speed with which Mr. Cornell pulled the plug on the misfire. Where Target used to be known for a culture of “Speed is Life,” this was replaced over time by a more cautious approach to the business. It’s arguable that the size of the investment deserved more time for a turnaround, but the prospects were so dim (no profit until 2021) that Mr. Cornell’s decision represents a wake-up call to his own organization and to the investor community.
Poor execution. Similar to Fresh & Easy’s entry in to the U.S. The Zeller’s locations where “B” and “C” and no match for Walmart. Different horses for different courses and Canada was not the right course. Human error and poor judgment. The things Target could not change fast enough were the locations chosen. Starting out in weak locations is not a good way to start.
Target had little to offer the Canadian shopper that they couldn’t and weren’t getting elsewhere. Yes, shoppers would come into the U.S. and hit Target stores there, but my guess is that they were coming to the U.S. to hit lots of stores—Target was just one of them. For those who liked the U.S. Target experience (selection, prices, ambiance) the failure to deliver that in Canada was not a good decision.
A look at the two ad examples will give you the best clue about this monumental fail. Both reek with condescension. Obviously with “Can’t wait to meet you neighbour” (sorry you can’t see the red underlining) you can imagine some U.S.marketing committee discussing the “u” as though it was some weird French-Canadian thing. It was probably the only word they could think of that would make them look Canadian. They’d have been better off learning how to pronounce “niche” correctly.
Then there’s the Target moon over the beautiful city of Saskatoon. How precious that Target rises above poor Canadians, lighting the way through our darkness.
Not sure I can back this up totally, but it seems to me that almost all enterprise retailers migrating north have struggled when they hit the 49th. Not many actually get it. If you’re thinking, “Get what?”—I rest my case.
As a U.S. citizen having lived in Canada for three years, you quickly learn that Canada is NOT the “51st state.” It is definitely a unique country, culture and market.
However, one of the biggest challenges for retailers going north to Canada is that 75 percent of the Canadian population lives within 100 miles of the U.S. border. They frequently shop in the U.S. and know U.S. prices even better than we do. They are also savvy e-commerce shoppers.
Target’s failure is a prime example of not being able to offer the Canadian consumer a unique value proposition beyond price.
Does this sound like a recipe for success? Secure locations from a failed business, don’t provide the same shopping experiences that your customers are used to, sell for a price point that is, or perceived to be, higher that what you customers expect, offer less merchandise and execute poorly.
Target’s failure should not deter other retailers from entering the Canadian market, but should provide them with a list of things not to do.
I think the rash of store closings in Canada including Target and Maxx and Sony should give anyone looking to expand in Canada—whether homegrown or from the U.S.—cause for concern. Sure there were execution issues but I don’t believe it’s due to them all being online.
I have to believe the price of oil and this mass exodus from Canada does not portend well for consumers or retailers there.
They started on the wrong foot, without a doubt: Poorly stocked shelves, uneven store disciplines, etc. Although the higher tax rates in Canada did much to drive the price disparity to the U.S. stores (which Canadians, with 75 percent of the population less than 150 miles from the border, were familiar to some extent). I suspect Canadian Tire was a complete unknown and poorly understood quantity for them. Walmart rolled up their sleeves. So as they stumbled out of the blocks the competition beat on them and customers moaned. As a Canadian living in the U.S. for the last 10 years I’m still surprised by how Americans often assume Canadians are the same. Hint: They’re not.
I think Sony gave up the ghost in Canada this week, too.
Great opportunity continues to exist for U.S. firms operating in Canada, and for Canadian firms and products to be sold in the U.S. As has been reported previously, Target came to Canada in the “value” space later than two other U.S. rivals, Walmart and Costco. That made the hill a higher climb, particularly with some of the worldwide slowdown of the past six years.
In addition, Target didn’t do their homework about the consumer prior to moving into the country—cultural, economic and value differences. Same issues occurred in China for Home Depot and Best Buy. Retail, on a global scale, is no different than on a local, regional or national scale. You have to study the consumer first and foremost. Just because we may have a great product in our backyard doesn’t mean it will automatically translate in a new venue.
Gone are the days that a firm can wait 10 years in order to become profitable, especially if they have to go to the public markets for cash. Target has pointed out that a profitability stage wouldn’t happen until 2021.
No matter the size, all organizations have limited resources of time, capital and people. Target had to choose an exit plan. Their board and executive believed this one to be the best solution. Take care of consumers and associates as they move on, but don’t look back.
Study the consumer FIRST.
There are a few others closing shop, reducing their footprint in Canada. I believe Sony is the latest to make the announcement. So yeah, I think all the U.S. chains are taking a good look at Canada. This is terrible news for Canadian consumers.
The Canadian dollar right now is not helping this in anyway.
Too soon, too fast, not always the best locations. Wise choice to pull out and stop the bleeding. Take the losses and move on.
Cornell inherited the Canada problem. Beyond fixing issue around OOS and price perception, Target needed to repair its relationships with Canadian consumers—a much harder task by far and one that it may never have achieved.
By pulling the plug, Cornell now has the opportunity to focus on the U.S. business, which still needs some significant TLC, and make the U.S. turnaround the focus of his legacy.
With a myriad of problems to solve and so many stores and markets in which to solve them, the decision to exit Canada was likely the right one. Mistakes were obviously made, but I would argue that biggest detriment to Target (in both Canada and the U.S.) is their out-of-stock and category depth issues.
In my humble opinion, other than cosmetics and apparel most of Target’s categories are woefully under SKU’d and chronically out of stock. These conditions are merchandising and logistics issues that appear to be the result of too much emphasis on inventory control and resulting cash flow, and not enough focus on consistently carrying the items that shoppers (no matter what country or locale) want.
Mr. Cornell is noted to be one of the top marketers in retailing and I would wager that we will see progress on these fronts under his leadership. However, my counsel is that physical store expansion plans should be subordinated to fixing Target’s operational and merchandising deficiencies.
This is a terrible time to be pursuing more deployment of the traditional, super capital-inefficient store. Quadruple the stores with one fourth the size—properly merchandised—will be vastly more efficient. See: “The Problem: ‘Parked’ Capital.“
Canada may be close to the US; many Canadians may shop in the US; many Canadians may purchase US products. Canadians are NOT US consumers. Global business is not easy. Just because consumers speak some version of English does not mean they behave the way US consumers do and business processes do not work the same way around the world. In spite of this information being made available through every consultant, training program, and class, companies still think they can make their US operations and approach work in another country—especially one so close to the US border. Again, Target is evidence of things not working the same way in another country.
Well I for one, know and respect Mr Cornell. I am sure this decision was well analyzed. I also know the Canadian market…a good one, so Mr Cornell must have seen the damage to the brand as a longer-term prospect than repairing the merchandising and supply chain.
I do not see other retailers shying from Canada, but hopefully they will do more homework and take nothing for granted just because “they speak the same language as us.”
Target will rebound!
Sometimes business models are not a good fit for every market. This looks like one of those times.
The coroner’s inquest findings seem to be split between: failure due to (1) general logistics issues – shelf stocking, store locations; (2) tangible Canada-specific issues – taxes, exchange rates; and (3) intangible Canada-specific issues (i.e. they didn’t “get” the market). The first is certainly avoidable, and says nothing good about the execution; the second is unavoidable but certainly foreseeable; the last is harder to judge (although if Ian’s belief that “Moon over Saskatoon” is somehow condescending is typical of his countrymen’s reactions, then I think the bar never could have been cleared).
Presumably their international expansion will now proceed to smaller, safer targets (no pun intended)….Bermuda anyone?
It’s just like us Americans to think that whatever it is we’re doing, anyone anywhere else will love it just as much as we do. Not true (think Best Buy China, Walmart Germany and dozens more). That thinking has been prevalent since WWII. Maybe, when the Millennials start to take a little more control it’ll change, but I’m still not sure the lesson’s been learned.
The only exception so far has been Starbucks, who just opened their 1000th store in China along with countless others around the globe. There’s something to learn from that, hopefully.
Hopefully, it will remind other chains that they need to do their homework very, very carefully before trying to repeat their US success in another country. Let’s see how the next entry into Canada, Nordstrom’s, does. I’m thinking they have probably learned a lot from this story.