People inside Target were saying, look, the writing
is on the wall. This is going to be a disaster.
These images are from the inside of a target, not in
America, but in one of 133 Canadian stores that
began opening in 2013.
Empty shelves, mediocre atmosphere, and all in
all, a surprisingly dull and unfamiliar experience.
It is not the target Americans know and love,
and it was not the one Canadians were eagerly
anticipating either.
Despite all of the excitement, Target's
Canada launch was a rushed mess and an
expensive one at that.
It ended up costing the retailer $4.1 billion in
after-tax losses for just one year.
Major supply chain issues, poor real estate
decisions and fatal merchandizing errors left
the retailer unprepared and ill equipped to handle
the fallout. Target gave up on its Canadian dreams
in 2015.
So what happened?
And why couldn't it translate to a country
that largely spoke the same language and whose
consumer preferences were presumably similar?
Target's launch in Canada was its first real foray
in international expansion. The company had
been eyeing the country for its close geographical
location and its mostly English speaking consumer
base. Even the colors of the Canadian flag matched
the company's official colors, influencing the
red maple leaf imagery in its ad campaign.
An opportunity to purchase leases from
failed Canadian discount retailer Zellers was also
appealing, which altogether was a 1.825
billion CAD transaction in 2011.
In the context of the aftermath of the 2008
recession, Target saw a lot of economic potential
up north.
Even by 2011, the consumer economy in the U.S.
was struggling to return to any semblance of
vitality or normality.
That's Doug Stevens, author, retail veteran and
founder of Toronto-based consultancy Retail Profit.
At the time, Target was interested in pursuing
physical avenues for its international expansion
rather than online.
By 2013, the establishment and
construction of its Canadian stores,
merchandizing systems and supply chain were in full
swing and it was a big deal.
It was to be Target's largest single year of
store openings, with the expectation to open 124
stores across all ten provinces.
But it would not turn out to be the massive success
Target was anticipating.
Consumers were pleased at the idea of Target Canada.
I recall going to a pop up shop in downtown Toronto
that Target was holding.
There was a lineup around the block.
People were extremely curious.
It really requires a lot of expertise of the Target
market in all its facets, you know, not just
customers, but competitors, the local
community suppliers, laws and customs and so forth.
The company launched a multi-platform ad campaign
which used the verbiage neighbor with you in order
to appeal to local culture. The launch
generated decent buzz.
People were talking about it.
Canadians who had experienced Target in
America were eager.
I think that there may be this assumption,
particularly on the part of of American companies,
that Canadian consumers are essentially just
carbon copies of American consumers.
But as soon as you start making some of those
assumptions incorrectly, they can add up to a
problem. I would say, though, in this particular
case, I would say that Canada was really Target's
to lose. But there was also, I think, a level of
arrogance.
With such a tight time frame, 124 locations in
ten months, its supply chain was not properly
structured and riddled with data errors.
It grew to be one of the biggest hurdles as it
continued opening.
Those hurdles heightened alongside major technical
issues and a flawed merchandizing system.
They had overstock's in their warehouse of goods
while stores were empty.
I mean, that I think was really the biggest problem
and had Target simply put a moratorium on it right
away and said, look, we can't afford to fail here.
They were really well known for their product
alliances and their designer alliances and a
great store environment.
They weren't necessarily up to scratch when it came
to operational efficiency and enterprise management.
And despite clear systemic shortcomings, Target
assured consumers their experiences would be
remedied. The company even issued an apology
video on YouTube.
We had some disappointments when we
opened. Certainly, we think we've disappointed
our guests. But here at headquarters and at our
store teams, we're working really hard.
If you were to trace this back to the decision that
changed everything, it would be that decision to
persevere through these inordinate systems
challenges. And it became like a game of
Whac-A-Mole, you know, like they would fix one
problem, but that would create another problem.
And it just became something that nobody
could really figure out until it was too late.
Alongside major renovation needs within buildings
previously occupied by a discount retailer, AKA
Zellers, it led to an unsightly physical store
experience.
I mean, I was going into stores in the Toronto area
and I was looking around at, you know, running feet
of empty shelves.
Merchandizing where you would have products one
deep but 20 across because they were trying
to fill space.
And this is just not normal, right?
There was something dreadfully wrong, but they
just kept denying it.
You have these available stores and you're fitting
your business into that instead of the other way
around, really controlling the location,
the layout of the store.
That is really a big barrier.
The underestimation of Canadian retail
competition was also fatal.
Much of the budget market had already been captured
by Walmart, Costco, Giant Tiger and Sears.
Target's poor leadership in the North also
exacerbated its issues.
A president of the Canadian business whose
forte was not systems, not operation, not
inventory management, but merchandizing.
So the skill set really didn't match the
challenge.
With the launch going south, May 2014 saw the
exit of two Target executives, U.S.
CEO Greg Steinhafel and the president of its
Canadian operations, Tony Fisher.
Steinhafel had resigned.
Fischer was fired.
Amidst already piling issues, Target was also
facing even more challenges at home.
An infamous 2013 data breach incurred $191
million in gross expenses and was one of the biggest
data breaches to hit a U.S.
retailer. Data from up to 40 million credit and
debit cards were stolen, a scale that ultimately
evolved into a damaging and lasting breach of
customers' trust.
By 2014, Target had determined its Canadian
operations were so costly it would not be profitable
until 2021 and finally called it quits.
Its full year after-tax losses in 2014 due to
discontinued operations amounted to a massive $4.1
billion. 17,000 employees lost their jobs.
While an obviously difficult outcome,
Target's narrative, trying its hand at an
international expansion and failing, is hardly
anything new.
In 2006, Home Depot attempted an entrance into
the China market.
It misunderstood consumer culture and trends and
closed all stores by 2012.
In the case of Walmart's expansion in Canada, the
retailer enjoyed a much better reception, even
when it was initially seen as a threat to the
country's homegrown retailers.
I would argue that Walmart's entry into
Canada was done with surgical precision.
I think Walmart is known for being an incredible
operator of its stores.
Its systems and its processes are second to
none in many cases.
And I would also argue that there was maybe, at
the time, there was even less love for Walmart in
Canada. I don't know that the Canadian market was
necessarily as receptive to the idea of Walmart
coming into the country, but Walmart did a
tremendous job and in the ensuing years they really
managed to make themselves a part of the
retail fabric of Canada.
In the immediate aftermath of the Canada exit, the
entrance of Brian Cornell's leadership
helped the company recover and maintain its
beloved reputation back home.
So he brought a lot of fresh air to target.
He had a focus on merchandizing and building
the digital business, urban stores, and as well
his management style is very data driven, but also
being out within the company but also out in
the marketplace to really listen to his team, but
also to customers.
And Target has invested a lot since then in its
stores, store remodeling and design.
Also the digital operations, not just the
website, but also integrating online with
the stores for pickup, or for drive up, for
delivery, same-day delivery.
Its private label brands have been a particularly
strong area with a whopping 48 labels, ten of
them boasting billion dollar value.
Right now in 2022, Target is no longer pursuing its
past international interests and is focusing
entirely on the U.S.
market for the foreseeable future.
It has plans to completely renovate 200
stores at home and open 30 more this year.
They have even little initiatives thinking about
their customer experience. They are now
trying to expand that people that pick up online
orders at the store, they can even add Starbucks
orders. And they also make it easier to return
with these drive up options.
Its expansion strategy is in its brand partnerships,
branching out into brands like Ulta, Disney, Levi's
and Apple. The company is also leaning into its
advertising offerings, using Roundel to optimize
ad placement on its digital platforms.
Inflation has wrought havoc upon the economy,
and Target's profits sunk a striking 90% in Q2 2022
from last year due to an excess of unwanted
inventory.
There has been a distinct change in consumer
behavior. You know, it has been an extremely
inflationary time and consumers have adapted.
So they are buying less in discretionary
categories. So Target is now shifting more on
focusing more on the essentials again.
And in the meantime, it's clearing this inventory of
discretionary goods.
So that has led to discounting.
For now, Target's stay at home plans are locked in
place as the aftershocks of the pandemic ripple
into a taxing inflationary wave.