Why Target waved the white flag in Canada
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Jan 15, 2015  |  Vote 0    0

Why Target waved the white flag in Canada

Target waited 19 years after Wal-Mart’s Canadian arrival to make its first test of an offshore market in Canada. Given that, you would think Target had learned from observation how to get Canada right

OurWindsor.Ca

Target Canada, we hardly knew ye.

After just two years, the American retail giant, with $73-billion (U.S.) in sales, couldn’t cut it in the most Target-friendly market outside the company’s homeland, and is quitting Canada.

All those value-minded and fashion-savvy Canadian shoppers who for years made pilgrimages to Target’s emporia in the U.S. gave Target Canada a look-see. Disappointed with what they saw, they decided to stick with Wal-Mart Canada and mom-and-pop dollar stores with the aesthetic appeal of a firetrap.

For offshore retailers, Canada is the most inviting foreign market on the planet. Contrary to our image of frugality, Canadians are shopaholics. We don’t quite match Americans in shopping till we drop. But we do it enough that economists worry about record-high levels of Canadian personal indebtedness.

Canadian shoppers have warmly embraced discounters like Wal-Mart Stores Inc. and the Winners, HomeSense and Marshalls arms of U.S-based TJX Cos. Inc.; San Francisco-based Gap Inc. and its Old Navy and Banana Republic units; the cheap-chic operators H&M and Zara of Sweden and Spain, respectively; Sweden’s Ikea and the U.S.-based Crate & Barrel, Williams-Sonoma, Pottery Barn and Restoration Hardware home-goods vendors; Japan’s ubiquitous 7-Eleven outlets; U.S.-based Staples Inc., which quickly displaced Grand & Toy as Canada’s dominant office-supplies merchant; and the upscale boutiques of French interlopers Cartier and Hermès. That’s the short list.

It’s almost a slam dunk to make Canada your first foreign foray. Within a decade of its arrival here, Wal-Mart was Canada’s biggest general merchandiser. Canada was the launching pad for the Arkansas leviathan’s similar, subsequent success in Mexico and Britain. This is a long-established phenomenon. Canada provided that same international launching pad for McDonald’s Corp., which enjoyed early and continued stupendous success in Canada, its first non-U.S. venture, in the 1960s. Today, McDonald’s has stores in 119 countries.

Yet, in announcing Thursday its defeat in Canada, Target — and this is downright weird — claims it cannot see a way of making a profit here until 2021 at the earliest. The initial projection by the Minneapolis-based Target was for Canadian profitability by 2013. That may have been a tad optimistic, but it was in the ballpark for a “Tar-zhay” so long admired from a distance by Canadians eager for Target’s arrival in the Great White North.

Target waited an extraordinary 19 years after Wal-Mart’s Canadian arrival and rapid success to also make its first test of an offshore market in Canada. Given that, you would think Target had learned from observation how to get Canada right. Instead, Target so bungled its first international expansion that it now says an incredibly long eight years would be required to achieve profitability.

But there’s always a backstory.

Waving the white flag in Canada is something Wall Street is demanding, given Target’s amazing accumulation of $2 billion (U.S.) in Canadian losses in only two years. And retreat is almost a no-brainer for Target Corp.’s new turnaround CEO, who is intent on an expeditious show of action.

Target Canada could have been fixed in far less time — the first two years for Wal-Mart Canada were not a walk in the park, either. But Brian Cornell, Target Corp.’s tenderfoot turnaround CEO, felt the need for a dramatic amputation to show his board and the Street that he was a good pick to repair a Target Corp. whose profits collapsed by more than one-third last year.

Target worked hard to ensure failure in Canada.

To establish a large “footprint” here, it bought Hudson’s Bay Co.’s least awful Zellers stores, and was slothful in remodelling them. And its few stores built from scratch were often anti-shopper. The one nearest my West End home, in the Stockyards campus of big-box stores, has no ground-floor presence. Shoppers are obliged to wait for an elevator to take them to the selling floor.

Visitors are greeted at that selling floor with displays of what appears to be randomly selected junk, rather than, say, high-margin NHL jerseys, with an emphasis on the Leafs, of course.

Target Canada has had few rivals in displaying what meagre volume and variety of goods it carries so unattractively. And it has pretty much topped the list of retailers chronically out of stock. Retail 101 says you can do that once, maybe twice, to a shopper who leaves your store empty handed, and you’ll never see that customer again.

In the 1990s and 2000s, Target nailed its winning “Tar-zhay” formula of affordable chic, yet did not bring it to Canada. But Target by then had drifted away from that formula and not found something to replace it. For the past year, Minneapolis headquarters has been in chaos, with revolving-door management among all-important buyers right up to the new CEO, inexplicably recruited from the food and not general-merchandise industry.

In fairness, the woes of Target Corp. are widely shared. Circuit City Stores Inc., Borders Group Inc. and Blockbuster LLC, once celebrated as “category killers” because they so dominated a retailing niche, are dead. The pioneering Toys “R” Us Inc. would have joined them in the boneyard save for a 2005 leveraged buyout that took the humbled company private.

Closer to home, shares in Indigo Books & Music Inc. have lost a third of their value over the past five years. And Rona Inc. stock is down 15 per cent over that period, despite Rona’s hedge against superstore reliance by retaining its corner-store business.

The slow death of the former “category killers” is, of course, largely due to the Internet. Launching and operating an online merchandiser is vastly cheaper than establishing a bricks-and-mortar presence. And strictly online firms — along with traditional retailers, from automakers to drugstores to supermarkets, that have shifted online — are increasingly siphoning business away from conventional stores. To some extent, it’s Amazon.com Inc.’s world now, and we just live in it.

It’s too early to write the obituary for big-box retailing. But the deathwatch is well underway.

Toronto Star

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(1) Comment

By James2 | JANUARY 19, 2015 11:19 AM
Target failed because they refused to offer deal prices -- as simple as that. 2 weeks before Christmas, on a weekend, I was in Target, and my mom and myself were the only ones in their entire food section. We bought nothing; the prices were simply too high. A 2-litre bottle of pop went for $1.89 there, while a Price Chopper store in the same strip plaza sells it for .99 cents. This was before a Zellers store, and the Zellers failed there for the same reason. The area has many low-come residents living border-line poverty, and there is no way they'd pay their prices. 2 weeks before Christmas and there were 5 times as many people shopping for gifts for their dogs at PetSmart and Ren's Pet Depot, than Target. That's why they failed.
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