In what has to be one of the biggest retailing fiascos of all time, mass merchandiser Target has closed its 133-store Canadian division less than two years after it opened. Billions of dollars were lost.
Target’s misadventure in Canada holds many lessons for all retailers, including the very simple lesson that catastrophe invariably comes close on the heels of a retailer’s failure to offer consumers products they want at the price they’re willing to pay.
How could a retailer as big as Target is in the United States fail to grasp such an obvious concept as it moved across the border to Canada?
The answer is that pressures of competition and real estate forced hasty and ruinous decisions.
Call of the Northern Lights
Here’s the situation: A few years back, Target saw that its once unassailable sales levels were starting to slide. Seeing no clear path out of that problem, in a novel move, it expanded to a comparatively untapped market outside the United States. Canada seemed to fit the bill because Target was a known brand and wasn’t too far from its headquarters in Minneapolis. So why not Canada?
It seemed like a pretty sure bet. After all, the vast majority of Canadians were familiar with Target, and close to 10 percent of the population made frequent buying trips across the border to shop at Target stores in the United States.
Target perceived that a turnaround through expansion would be led by speed, given that Walmart was already gaining strength in Canada. In 1994, Walmart entered Canada by buying a fleet of Woolco stores and converting them to the Walmart banner. Beyond Walmart, the competitive set also included Loblaw, a company that operates conventional supermarkets plus hypermarkets under the Real Canadian Superstore banner. It’s also the owner of the popular Joe Fresh brand.
Target decided to follow in Walmart’s footsteps by buying a batch of existing stores that could rapidly be converted to Targets. So in 2011, it acquired the leaseholds of 125 Zellers stores from Hudson’s Bay Co. for some $1.8 billion. Two years later, it had renovated most of those spaces for another $1 billion. Then, Target started to open the new stores in rapid succession, and in short order had 133 stores up and running.
God is in the Details
As we all know, “retail is detail,” and one of the details Target had failed to carefully consider from the onset was the matter of logistics. Things are different in Canada. Package labeling requirements are different, package sizes are different, tastes differ from those in the United States and vary from province to province. You get the picture.
All those factors collided so that simply shipping product from Target depots in the United States to Canada wouldn’t work out. So much for expediency. And so much for economies of scale. Target opened three distribution centers in Canada to supply stores there with hard and soft goods.
That didn’t work out either. Computer systems weren’t properly coordinated. Bar codes couldn’t be read. Unexpected quantities arrived. Shipments weren’t properly made to stores. Immense heaps of product built up. Logistical depot nightmares.
As for food distribution, Target made a strange deal. It contracted with supermarket operator Sobeys to supply all types of food products, including private label. Ironically, Sobeys is one of Target’s main grocery competitors (formidable in 2013 with its purchase of Safeway Canada), second only to Loblaw.
Meanwhile, at Target stores, ill-prepared workers had insufficient goods to put on the shelves. When deliveries were made, they might not be the right products for the right consumers. Entire mountain ranges of product that wouldn’t sell were stockpiled at the stores. Logistical storage nightmares.
Trouble in Paradise, North of the Border
Canadian consumers weren’t too happy. They went to Target stores expecting the same shopping experience they were accustomed to in U.S. stores. To make it worse, Target’s marketing efforts in Canada promised just that.
That wasn’t to be. What shoppers found was that the Canadian Target was smaller than its U.S. counterpart.
They found whole aisles empty and in disarray with of out-of-stocks that persisted for weeks. They found products in unexpected locations. They found unfamiliar products. They found higher prices. They found low service levels, especially at checkout. They found it best to stay away.
Too Little, Too Late
Target sent teams of troubleshooters from the United States to the Canadian warehouses and stores, but things didn’t improve much.
Back at Target headquarters in Minneapolis, things were changing fast. CEO Gregg Steinhafel was under fire for presiding over Target’s declining domestic sales, a punishing data breach, and the mess in Canada. In addressing the Canadian situation, Steinhafel’s only contribution was to observe how different retailing in Canada was compared to retailing in the United States. He apparently had no plan to lead Target out of the wilderness.
Last year, Steinhafel was succeeded as CEO by Brian Cornell, a peripatetic executive with top-level stints at Safeway, Sam’s Club, Michael’s and PepsiCo. Tellingly, he was the first Target CEO ever appointed from the outside. Before him, Target CEOs emerged after lengthy tenures with the retailer.
Early this year, Cornell announced that Target Canada would be shut down after only 22 months. He said there was no path to profitability before 2021, and Target took a $5.4 billion write down.
When Failure Looms on the Horizon
In many ways, Target’s miserable experience in Canada was similar to the failure of Tesco’s Fresh & Easy stores in the United States, which has been extensively covered in The Robin Report. Let’s take a look at both of these management catastrophes to see what general lessons can be learned.
- Flee from hubris. It seems axiomatic that before opening any stores, research on targeted consumers and their expectations should be conducted. Yet Target and Tesco were supremely confident in their methods and arrogantly omitted that step.
- Haste makes waste. Both Target and Tesco were so anxious to pull abreast of competitors that they moved much too quickly in opening stores without the relentless preparation it takes to succeed. Their rapid acquisition of so many store locations didn’t help either.
- Throwing good money away. One of the many downsides of moving forward too quickly is that it’s very costly. From the vantage point of the executive suite, I submit it is better to hurl money at specific developing problems in a bid to salvage and justify the big investment rather than speeding into insolvency.
- Recognizing failure. The executive team that puts a losing proposition in motion is seldom the one that pulls the plug on it. At Tesco and Target, it took new leadership to acknowledge failure and deal with it. That’s especially true at Target. If the new CEO hadn’t come from outside the company, Target would still be in Canada waiting for profitability in 2021.
- Listen and learn. In contrast to the methods of those at Target and Tesco, German retailer Aldi entered the United States carefully and slowly. It took its time to research the market and learn from its customers. It took more than 20 years after it opened its first store before it started to break out and open stores at a fast clip. Aldi is now very successful in the United States as well as many other places around the globe.
- Reorient strategy. All legacy retailers are under pressure from rapidly changing consumers and the multitude of shopping choices apart from stores they now have. So, retailers should carefully consider whether expanding their traditional store base into new territories, or at all, is the answer. The better answer might be to offer sophisticated alternative choices for online and mobile users that would give existing stores a new burst of energy. Another approach would be to offer in-store product that can’t be found elsewhere. Trader Joe’s does that now; Target used to. Just look at the difference.