As Target announces the closure of all its stores in Canada, we consider the implications of this for the Canadian sector and the wider business.
Overly ambitious market entry
Target’s announcement that it is to close all 133 stores in Canada, less than two years since it first entered the market may not have come as a total surprise to those who have been watching the retailer’s progress. Being based in the country, I have seen first-hand some of the issues which it has faced. While there were many missteps along the way, it started with an overly ambitious market entry plan, from which it never recovered.
Supply chain issues
Opening 124 stores in its first year was a significant undertaking, but the supply chain could not support, leading to over-stocks in some stores, and serious availability issues in others. A pre-opening brand awareness campaign which was nothing short of brilliant, only compounded the issue. Shoppers were left disappointed – the experience, ranges and pricing were not as good as many had experienced at Target in the US. The retailer also brought its tried and tested US store format into the market, one which hadn't changed significantly for a number of years. This was a potential missed opportunity to try something very different.
Efforts to fix the business failed
A change in leadership last year led to several initiatives to improve business performance. These were focused on fixing the supply issues, sharpening pricing and enhancing the product offer. These efforts were in vain, with Target reporting that it did not see a step-change in performance over the holiday period. The financial losses to date have also been significant; Target management were unable to find a realistic scenario that would get its Canadian operations to profitability until at least 2021. No business could "stick with it" based on these projections.
Defensive playbook executed with style
It is also worth noting that Target’s competitors also did a brilliant defensive job. Walmart, Loblaw, Shoppers Drug Mart, Canadian Tire, and a host of general merchandise retailers focused on improving their store operations, offered better pricing and brought in new ranges. Many of Target’s stores were also in poor locations.
What next for the stores?
And this will be part of the issue as the inevitable speculation begins on who will pick up these stores. While some of the locations are questionable, the stores are in good shape. Target spent around $10m in refurbishing the former Zellers locations. Walmart will undoubtedly be interested in some of them. With an average size of around 115,000 sq ft, they will enable it to downsize in some locations, while also building a stronger presence in urban areas.
General merchandise operators are likely to be in the frame for most of them – many US based retailers have been targeting the Canadian market over recent years and they could provide a platform for expansion (of course they will learn from Target’s experience). Others which may have been considering entering the Canadian market, will now think twice about it.
An opportunity for Target to focus
With Target in the US itself coming out of a challenging year, the disposal will also enable it to focus on its core operations. The retailer is focused on accelerating its digital initiatives, developing categories it can be famous for, personalising the offer for its shoppers and developing smaller format stores. Without the distraction of Canada, it will be able to push harder and faster on these programs.
|Stewart Samuel, Program Director, IGD Canada|
Based in Canada, Stewart heads up all of IGD's research and coverage on Target. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] - for further insight on the region.