Why Target Canada failed? Its poor start doomed it for failure. Target gave its rivals almost two years to respond to its entry in Canada. In 2011, Target announced it would buy Zellers’ leases, but only in 2013 did Target open its first store in Canada. Then, it tried to make up lost ground and ramped up too quickly. This two year delay alone is a valid reason why Target Canada failed. What was Target thinking?
It was no surprise when on January 15, Target said it was closing its Canadian operations. This will affect 17,600 workers and cost its owners over $6 billion pretax. What a waste!
Target saw a chance for its first venture outside the USA. It viewed struggling Canadian discount retailer, Zellers as a ready made vehicle. So, it bought Zellers’ store leases–not its business–for $1.8 billion. But, Target made basic missteps that led to its demise. These are three major blunders why Target Canada failed:
- Protracted entry, rapid ramp up
- Brand promise neglected
- Competitive advantage overlooked
Why Target Canada Failed: Protracted Entry, Rapid Ramp Up
Target gave its rivals almost two years to react to its entry in Canada. In 2011, it announced it would buy Zellers’ leases. However, it did not open its first store until 2013. No doubt Target realized it was late, and opened over 100 stores during 2013 in former Zellers’ locations! During this rapid ramp up, many stores had empty shelves. From the start, Target Canada did not connect with its customers. It built up massive losses. Yet, it continued to open more stores in 2013, even with supply chain problems.
Then again, Target did not seem to know which markets it would serve. I went to the Milton, Ontario store a few times and it looked like Zellers with higher prices and fewer selections. Several times my wife went there and shelves were empty. Target Canada did not provide the Target USA experience. Target Canada tried to cut corners. It forgot the group’s mission and values. And it tried to be a slightly upscale Zellers.
Why Target Canada Failed: Brand Promise Neglected
The Target US mission is clear. Canadians know Target US and were happy to shop there. They knew Zellers, but did not support Zellers. Why did Target not follow the US mission when it entered Canada?
Our mission is to make Target your preferred shopping destination in all channels by delivering outstanding value; continuous innovation, and exceptional guest experiences by consistently fulfilling our Expect More. Pay Less.® brand promise.
Any wonder the Canadian stores closed? Target Canada did not focus on meeting Canadian customers’ needs and expectations. Empty shelves and higher than expected prices were major turn-offs for Canadians. That’s why Target was not a preferred destination. That’s why Target Canada did not deliver outstanding value. Surely, no one could expect more or pay [paid] less from Target Canada. That’s why Target Canada failed. Meanwhile, many Canadians continued their Target experience in the USA, and ignored Target Canada.
Why Target Canada Failed: Competitive Advantage Overlooked
Why Target Canada failed? Target Canada had no competitive edge. Why didn’t Target carry out its US mission in Canada? Canadians know Target US and expected the same quality, price, and service. In short, Canadians expected Target to be Target, not Zellers!
Why would a “border” resident stop buying in the USA when Target Canada did not operate like Target? In the US, a Canadian shopper had a wider choice at lower costs. Why use Zellers’ locations with no different strategy? How did Target expect to woo Canadian customers using a failed Zellers-like approach?
Conclusion and Lessons
Target Canada did not prepare adequately for this big expansion. It gave its rivals too much time to prepare for its entry. When it started to open stores, it ignored signs it was not connecting with Canadians. And it did not change its strategy. That’s why it is not surprising that it did not meet Canadians’ expectations.
Target should have answered these four questions before deciding to enter Canada.
- Why enter Canada? We should never do something because there seems to be an opportunity to gain an advantage. Target were not ready, and did not have a proper marketing strategy to enter Canada. Besides, proper due diligence would have shown that the cost of doing business in Canada is higher than in the USA.
- Will Canadians support Target Canada if it does not follow the Target group’s mission? It should have been obvious to Target’s leaders that Canadians were familiar with Target US. Therefore, Canadians would expect Target Canada to be like Target US. A simple due diligence would reveal this.
- Would there be a sustainable competitive advantage in Canada? Before entering a new market firms must understand the market, economic, and political environment. They must study potential markets, and customers. That’s basic. If firms do not have a competitive advantage that will provide value to their customers, they will not survive.
- What are our goals, available resources, constraints, and opportunity cost? Resources are limited. Target needed to understand what it should do, not what it wanted to do. Then, it would have understood how to employ available resources for its Canadian venture to gain a sustainable competitive advantage.
Many folks reported that Target failed in Canada for exchange rate reasons, and because Canadian and US consumers and different. Even if these points are correct, they would be obvious in a proper due diligence. The overarching lesson here is that we must do a proper due diligence before entering any market.
© 2015, Michel A. Bell