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Target Canada: International Failure

Via LinkedIn : Target Canada: International Failure


Target Canada began the entrance into the Canadian market in 2012 and exited stage left beginning early 2015.

The retail giant purchased property and infrastructure from the failing Zellers company, Canada’s own answer to the discount big box stores. This cost a whopping $1.8 billion just for the lease on the properties but gave Target the foothold of over one hundred stores in the Canadian market. The additional expense of $1 billion was allocated for renovation of the locations.

Why the Canadian market? Target enjoyed a consumer goodwill from approximately 10% of Canadians shoppers that had shopped or were shopping at Target locations across the border. An existing consumer base of 3.5 million is no joke to any company, offering the perception of a strong launching pad to compete in a market previously untouched by Target.

It didn’t take long for troubles to begin to plague the company as the launch was unrolled. Customers complained of empty shelves and prices that did not match their expectations. After the firing of CEO Tony Fisher analysts thought Target was truly committed to the turnaround of the company in the Canadian market.

Barely a year later the chain announced it’s complete closure of all 133 stores, a mass exodus from the country after an ill-fated foray into international expansion.

Where It Went Wrong

There are a few key areas of failure for Target’s expansion.

Supply chain management, public perception, and online presence.

There is a vast difference between opening a single store in a new market as a test and launching with over one hundred stores. While each hold their own merits there is a truth for both that must be accepted and acknowledged. Supply chain management is absolutely key. A store without product is no store at all.

When consumers griped about empty shelves in the first weeks it was perceived as an underestimation of demand. Weeks became months and the concern evolved into a lack of faith in Target’s distribution ability.

Three warehouses were run by third party firms on behalf of Target Canada, 1.5 million square feet each and located near Toronto, Calgary, and the Quebec border. These warehouses serviced over one hundred stores across the country but faced major concerns in the distribution chain.

Products arrived that were marked incorrectly, sometimes as another product or with incorrect quantities. Each of these had to be corrected, requiring time and effort and delaying the supply chain. One mistake on top of another soon develops a length delay, compounding into a far more pressing concern. On top of this the warehouses were receiving items that weren’t moving from the sales floor. In terms of turnover this is an obvious concern, a sitting product is not a selling product and each moment is costly.

Along with all the flaws in the distribution chain there was another. There was no knowledge of specific inventory that would be coming to stores on a specific shipment. Stores were completely blind to what stock they would receive on what day. Front line staff couldn’t even tell a guest when a product might arrive because they would honestly have no idea.

The supply chain concerns led to the consumer complaints of empty shelves, which began the march downward of public perception. For shoppers of the American locations, the Target Canada stores were nothing like what they expected. There was no selection because the product wasn’t there, the prices were higher and the price match policy was outdated for the market.

Target Canada lost the battle in the first months as consumers lost their faith.

In an era of ever smarter devices and online shopping a firm as large as Target has to live up to the expectation of utilizing that technology to serve consumers.

They did not.

Not only did the firm have a website that was oft complained about for it’s lack of…anything. The website mostly advertised a few products for a grouping and allowed users to find a nearby store. They could not order online or check in store inventory. A potential customer could easily find a competitor’s product online and check it’s inventory status at nearby stores, leaving Target far behind in the online world without a competitive advantage.

Band-Aid Solutions

Target is no slouch in the industry and of course as these issues came to light the solutions were developed to attempt to solve them.

They began to allow price matching on online flyers from local competitors in the market where competitors already allowed that.

Prices began to fall, even below Walmart’s.

Tony Fisher, the initial CEO, was fired in favor of his replacement Mark Schindele who was to be the force in bringing Target Canada back to standard.

It would become apparent that the issue was deeper than just these fixes, even in May 2014 there were photos surfacing of still empty shelves at locations. The distribution chain had not been corrected, consumers were still disappointed.

Root Cause

Tony Fisher made a statement upon his release, attempting to explain many of the issues that plagued his reign as CEO.

While the statement of a fired CEO may not be completely accurate, it is not hard to see the value in several of his points about the challenges he faced.

While still not a permanent fix it is an acceptable solution to empty shelving to utilize extra product to fill these placements, temporarily at least. The issue, as stated by Tony Fisher, was that Target demanded absolute adherence to the “planogram” (POG) that clearly outlines which product fills which section of which shelf. This left stores with their hands tied, forced to leave shelves empty despite understanding the perception that leaves with customers.

It seems that Target had decided the Canadian market was an excellent and ripe opportunity and moved forward with a plan while leaving the operations side as an afterthought. A store that doesn’t even stock simple essentials will lose consumers very quickly, even if they wanted to shop at a Target Canada location.

Was Closing the Only Option?

As they say, hindsight is 20/20.

Target could have entered with a more prepared supply chain and distribution network, a little research into the buying habits of Canadian consumers, strong online presence, and policies that were in-line with the rest of the market.

These are afterthoughts, Target does not sell time machines and cannot change the past. It’s more important to assess the choice of closure. This will be studied by students for decades as it has the hallmarks of one of the worst economic disasters in Canadian history, in terms of jobs lost.

Could Target Canada have undertaken a different course of action? Was the cost of such actions greater than the potential return? Were there underlying factors in from losses on the home front as well that required the writing down of debt and exit from Canada?

It is to be expected that the board of directors assessed multiple courses of action. However, and it is no insult to them personally, there have clearly been mistakes in decision making in the firm previously. Is this closure another?

The options left to Target were all going to be expensive, there is no quick fix for any of the issues.

Public perception is very difficult to repair and the term “empty shelves” would be a blight on the company for the foreseeable future, a store that was out of stock of one product would likely see a customer repeating that phrase to their friends and family. Even as the pricing became comparable, or better, the damage was done by a launch filled with products that were deemed to be too pricey by potential customers. First impressions and all that.

A proper supply chain with an inventory management system would do wonders for the company. A customer that sees an empty shelf but learns the product will be in the following Friday will be more forgiving than a customer told there is no time frame. This isn’t an attempt to place blame on the third party companies running the distribution, they were left at the whims of buyers and poor foresight. In general the supply chain was a failure and the cost of repairing it would have been astronomical, not to mention the delays in receiving product during any transition period that would have only compounded the public’s perceptions.

Offering online shopping, or at the very least a user friendly website, would have been an excellent opportunity for increasing the competitive edge of a firm that was lacking in that area. This might seem the most reasonable of approaches to damage control but without a proper central inventory management system it would have been costly to have each store listing available products. If they went for online shopping and delivery options that’s another enormous expense. Of course Target could have closed up as a retail store and switched to a delivery system offering Target exclusive products to Canada through a few old retail locations modified into warehouses or one of the distribution centers. This would have been less damaging and perhaps offered a more profitable model for Target to pursue.

Closing the least profitable stores is a less damaging approach than a full closure but unfortunately that only builds the public perception faults, an ailing company making efforts at recovery does not inspire shoppers. It is possible this would have slowed the loss to a more manageable level for a later recovery as issues were repaired but the cost would have still been quite high.

And So A Giant Falls

Honestly, it is this writer’s opinion that the damage had been done. The firm was hemorrhaging money with the only option as spending more money. Trying to stop the bleeding with a knife isn’t exactly a strong solution.

Target Canada made it’s effort and it was a bold one. Unfortunately that boldness of entry was not matched by boldness of supporting structure. Opening a hundred nearly empty stores is a damaging impression that is very difficult, if not impossible, to overcome.

The lesson to be learned for businesses and entrepreneurs is that knowing your market and implementing a strong support plan is absolutely crucial to success. There are other stories of firms entering a foreign market and failing in the most striking fashion (Home Depot) but the example of Target Canada will remain as a testament to the operations need in any business. It is absolutely vital that a company not only underestimate the need for market research and tailoring product but that it’s also understood how that product will be made deliverable. Empty shelves are not a good start.

First impressions and all that.

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