Canadian retailers, watch out. After scaring off the threat of one American behemoth, Target, Canadian merchants must face a much more competent challenger.
Target is scampering off the Canadian scene with its tail between its legs, closing all 133 stores after only two years. Yesterday, the global giant Walmart announced it was adding 29 new stores from a position of great strength.
But the numbers only tell part of the story.
- Walmart Canada plans 29 new stores in $340M expansion
- Target closes all 133 stores in Canada
- Target's exit leaves landlords scrambling to replace tenants for stores
Walmart's gradual growth over the last several years disguises the fact that on the face of it, the two stores used the same technique to enter the Canadian market.
Just as Target marched into Canada with 133 stores, many purchased from Zellers, when Walmart arrived in 1994, it took over 122 stores belonging to the Woolco division of Woolworth Canada.
Business case study
The comparison is worthy of a business school case study, but some differences stand out.
When Walmart arrived, it just happens that management consultant Mark Satov was in the construction business. His firm had a contract to turn Woolco stores into Walmarts.
"I remember distinctly we were not allowed to go into the stores during the selling day," says Satov.
As the stores remained open for business, decorators added signs and the company's interior colour scheme.
"And I know that because we had to paint them and the red has to be this colour and the blue has to be that colour," he says.
Now as the founder and leader of Satov Consultants, Satov studies the retail business. He says Target was behind the eight ball from the beginning because, unlike Walmart, it shut down stores for a complete revamp.
"Mass marketers count on a habitual shopper. So if someone's used to going there every week and you shut down for two or three months, well, what happens is they get into a new ritual," says Satov.
That meant that when the Zellers stores shut down, regular shoppers had three months to change their shopping habits
They headed for Canadian Tire or the Real Canadian Superstore. Or Walmart. When Target finally opened in its remodelled stores, it had to woo the shoppers back.
'They came with a teaching mentality and not a learning mentality' - Retail consultant Mark Satov
Of course, retailing has changed since Walmart came to Canada nearly 20 years ago.
Nowadays, big box stores like to build their own new stand-alone outlets as Walmart will do in this expansion.
But in 1994, Walmart had one more big advantage in that Woolco Canada was practically family.
The American chain had already purchased Woolco's U.S. stores, effectively founding the Walmart we think of today. That mean Walmart was able to tap into Woolco's existing Canadian supply chains, which were similar to its own.
When Walmart came to Canada, it effectively kept the majority of the stores running, hiring all the employees of those stores, including managers, and giving them a raise.
Target managers, for whom Canada was the first foray outside the United States, arrived with a completely different attitude.
Target was brash
"They came with a teaching mentality and not a learning mentality," says Satov of Target's arrival. "They were very brash and they were not too interested in the views of Zellers management."
Satov thinks that was a mistake. While they were struggling with a dying brand, much like Woolco in its day, Zellers managers were experienced retailers who knew the Canadian market.
All that said, breaking into a new national market is never a simple formula, even for huge and successful retailers.
British retailer Marks and Spencer should have been a shoo-in for the Canadian market following its arrival in 1973. After expanding to 47 stores, the retailer finally packed up and went home.
Food retailing giant Tesco had a similar experience more recently in the United States. Even Walmart has failed in attempts to crack some markets including Germany, India and South Korea.
But unlike Target, it appears that Walmart has got our number. From its global position of strength, Walmart has the business smarts, the money and the organization to fill the gaps in the market Target, and Zellers before it, left behind.
And as Walmart expands, it issues a new challenge to Canadian-owned chains and independents. Maybe the sighs of relief over Target's failure came too early.