Target announced that they are shutting their Canadian operations. Target Canada’s two years in Canada have been fraught with problems and their decision to exit the market was not a surprise. There are several lessons for retailers in Canada or those planning to enter the market that will help increase their chances of success.
1. It is hard to turn a large ship.
Target chose to aggressively enter the Canadian market in 2013, opening 124 stores in their first year. Despite problems, such as not being competitive enough in price compared to established retailers such as Walmart, or having enough inventory in-stock, Target Canada continued to open stores. While it may sound attractive to take the market by storm when you first launch your brand, opening too many stores too fast limits your ability to respond to problems quickly and effectively.
Ideally, prototyping your first store and cautiously expanding at a pace appropriate for your progress gives you the flexibility to make changes in response to your results. Target Canada failed to be nimble in a time when first impressions were critical, and when the problems accumulated, they couldn’t catch up.
2. Customer data is an invaluable tool.
Prior to their entrance into Canada, Target ran a campaign to convince Canadians that as our ‘neighbour’, they understood us. While Canadians and Americans are the same on the surface, we are very different. Prior to launch, you will not have the luxury of POS data to provide you insights on your target customer. However, using a combination of market research and desk research, you can learn about consumers in your market.
Target was in an enviable position since many Canadians shopped in their US stores. They had the opportunity to mine data from these consumers to understand why they shopped in Target stores and what they expected from Target Canada. Insights from this research would have highlighted essential market differences and trends. When combined with data after launch, this data would be an invaluable tool for identifying opportunities and gaining a better understanding of consumers.
You always have the ability to research potential customers. Unfortunately, Target missed the mark on this one.
3. Location and store layout challenges.
Target arrived through the purchase of Zeller’s leases. While some locations were excellent, many were in poor locations that did not attract Target’s target customer. As with all real estate, there is one rule: location, location, location. Even if you are a destination retailer, it is critical to carefully choose your location. Taking available space that does not meet your needs will lead to disaster.
Target Canada did not understand consumer traffic patterns. Whether your product selection encourages multiple weekly shops or shops of a lower frequency, understanding consumer traffic patterns will ensure that you choose a location with a higher likelihood of success. Target Canada was trying to encourage frequent shopping with their product selection, but the combination of out of stocks and poor locations meant that shoppers were not encouraged to come regularly.
Target Canada’s stores also required extensive renovations that needed to be completed within short timeframes. Even when you can get the perfect location, you need to carefully plan your store layout. It is critical to plan the store layout to ensure you address the nuances of shopper in-store behavior and how to optimize traffic flow. Many Target Canada locations were poorly laid out and rushed to completion. If you inherit retail space, make sure your budget allows for transformation of the space.
4. Never underestimate the competition.
Wal-Mart experienced their own troubles when they entered Canada, but after 20 years of testing and learning, they’re now solidly entrenched in the hearts of many Canadians. Target didn’t pay enough attention to what Wal-Mart was doing right, and they’ve never had to launch in a market where Wal-Mart was already a solid player.
Similarly, retailers like Loblaws, Shoppers Drug Mart and Canadian Tire – strong brands that Canadians have an attachment to—upped their game in anticipation of Target’s entry. Smart retailers adapt to new competition and evolve according to changes in the market. Target appeared to assume that they could succeed based solely on the strength of their brand in the U.S. market.
Target Canada’s demise has provided Canadian retailers and those looking to enter the Canadian market with many valuable lessons that will help to ensure you don’t follow Target’s path of retreat. One thing is clear: never enter a new market prematurely. Always dot your I’s and cross your t’s, or your exit will be as swift as your arrival.