Target's launch into Canada 'a multifaceted failure'

Target's foray into Canada was seen as a natural expansion for the American retailer that for years had been a magnet for Canadian shoppers. But nearly two years after its launch it has become a victim of bad management, poor planning and misguided and overambitious expectations.

Retailer to close 133 stores across Canada after launching in March 2013

Having lost nearly $1 billion in its first year in Canada, and facing more multimillion-dollar losses, Target announced on Thursday it would discontinue its operations in Canada and close its 133 stores. (Dan Riedlhuber/Reuters)

Target's foray into Canada was seen as a natural expansion for the American retailer that for years had been a magnet for Canadians, attracting hordes of shoppers across the border.

But nearly two years after its much hyped and heralded launch, Target has thrown in the towel, a victim, some analysts say, of bad management, poor planning, and misguided and overambitious expectations.

"I think it’s a multifaceted failure," said Doug Stephens, retail analyst and author of The Retail Revival: Re-Imagining Business For The New Age of Consumerism. "The plan that they undertook was imperilled and overly ambitious from the beginning." 

Having lost nearly $1 billion in its first year in Canada, and facing more multimillion-dollar losses, Target announced on Thursday it would discontinue its operations in Canada and close its 133 stores.

"When you open a retail store, the first three months are vital. You're trying to connect with your consumers and they did not connect," said  Brian Sozzi, CEO and chief equities strategist of Belus Capital Advisors. "And they’ve been trying to play catchup ever since. It’s been downhill since they opened the first store."

Most critics say Target was overambitious from the start, rolling out 130 stores in just over a year. But some analysts say that before the first customer walked into a store, Target faced significant challenges, which included entering a crowded and competitive marketplace.

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Overestimated potential market

"They overestimated the size of the potential market for them, for their business," said Antony Karabus, analyst and president of Hilco Retail Consulting. "They underestimated the fierceness of the competition and the loyalty to existing retailers" which include Walmart, Canadian Tire and Home Depot.

"You can only unseat an incumbent if you bring something better. That’s the fundamental issue. They didn’t bring something better."

Target also signed a costly "trainwreck" of a deal in which it inherited the leases and locations of Zellers stores across the country," said Brian Sozzi, CEO and chief equities strategist of Belus Capital Advisors.

Target had trouble keeping stock on its shelves but analysts say its products mostly failed to excite consumers. As well, many customers complained Canadian prices were too high. (Colin Perkel/Canadian Press)

While Target would save money on building costs, most of its Canadian stores would not be based on their U.S. models that have been so successful. As well, the Canadian stores were not in "Triple A locations," and many were not big enough, nor did they fit nicely with Target's brand, Stephens said.

"In the U.S when you walk in the front door of a Target, you know exactly where to go. The floor plan is predictable, you know where to go for what you want," Karabus said. "So you're not getting  the frustration of running around the store trying to find what you want. [In Canada], you didn’t know where to go."

Then there was the issue of stock, or lack of it.

“I recall going into one of their grand openings in Aurora, Ont., and seeing hundreds of linear feet of empty shelving. I was astonished," Stephens said.  "It became a thing. People began to ask, 'Why is there so much empty space? Where are the products?' "

Target admitted it had supply chain issues but promised to fix them. Instead, the problems persisted, even into the recent holiday season.

"They simply didn't have the right sort of enterprise management software in place to respond so when it became evident they were out of certain things, they didn't have the right systems in place," Stephens said. 

'Flying blind'

But Target also failed to acquire the sales history of the Zellers stores, meaning they were "essentially flying blind" upon their launch. 

"They had no idea what they would sell, what they should stock, how much of it. So Day 1, when they opened their stores, they had no clue," Stephens said. 

Meanwhile, the stock they did have failed to excite consumers.

“I went to [Target] a number of times in Canada and I didn’t see a lot worth buying whereas when I would go to Target in the U.S.… there's always a treasure hunt," Karabus said. "There’s always something."

Pricing was another issue. Many consumers, used to the deals in the U.S., complained Canadian prices were just too high. 

"They did not drive that right balance of great assortment and appropriate pricing," Sozzi said. "It wasn’t until this holiday season where they tried to get much more aggressive on pricing, tried to be much more price competitive. But by then, the customer was already turned off by them."

"Their price point should have been sharper, should have created more wow around their apparel assortments," he said. "They just didn’t have enough exclusive partnerships in place to get people excited about the Target brand, to get them more excited about shopping at Target than at Walmart."

Stephens said Target should have focused on the 20 per cent of the stores that were generating or had the potential to generate the lion's share of the profits and cleave off the rest. 

“I think what they ought to have done right away is say 'OK, we have a really really horrible situation on our hands right now. We have 130 stores that are substandard and failing across the country,'" Stephens said. "'But let's pick out the must-win markets. Let's pick the stores where we simply can't afford to lose and let's apply every organizational and supplier resource to fixing the situations in those stores.'"