What Bugs Me About Target

On January 15, Target announced they were pulling out of Canada, closing all 133 stores and terminating over 17,000 employees. While the news caught everyone outside the U.S.-based leadership team off guard, it should not have been a surprise. Target in Canada never really caught on, and there are a number of reasons for it.

Supply Chain Management –

Target and their suppliers seemed to struggle with the concept of a border, even one that is part of a free-trade agreement. Stock outs, especially on promotional merchandise were common and well documented. How frustrating for consumers to travel to a store specifically for a ‘sale’ product and find an empty shelf and an employee with that ‘I don’t know’ helpless shrug.

Store Concept –

Zellers closed their doors for a reason, ultimately as a result of not being able to compete with the 800-lb retail gorilla from Arkansas. Zellers could not differentiate itself sufficiently from Wal-Mart, and primarily went head-to-head on cost. Not a battle they were going to win, especially when they layer on mediocre store layouts in less than ideal locations.

Target’s entry strategy into Canada? Let’s buy some of those defunct Zellers stores, tweak the paint and get going! In the end, Target was another low-cost retailer with no meaningful differentiation trying to compete with Wal-Mart. Fast forward to 2015, and the loss and write-offs are north of $5 Billion.

I don’t begrudge new-CEO Brian Cornell for closing Target in Canada. Given the situation, and their apparent lack of understanding of their customers in Canada, it is the right move for the broader corporation, as evidenced by the applause from the investment community after the announcement.

What bugs me is that it didn’t have to be this way.

Canadian consumers were excited about Target coming to Canada, having experienced the retailer’s low-priced chic, fresh layouts and good service south of the border. In fact, Canadians had been trained what to expect and were enthusiastic about a new player on the landscape. How nice to have customers waiting for your arrival!

There are a couple of concepts I use when discussing Operations Strategy with students and executive teams that are applicable here. The first is, customer enthusiasm and loyalty in a service only exist when there isn’t something better next door. That is, switching costs in many services are essentially zero. In this case, Canadians familiar with Target in the U.S. flocked to stores when they first opened, and were immediately disappointed. This isn’t what we expected. As a result, we may shop there a few times, but very quickly, we will return to previous shopping habits.

Target execs made a number of comments about this, essentially blaming consumer behavior in Canada as a contributor to their failure, which is an inappropriate perspective. The superstore concept works in Canada, as demonstrated very successfully by Wal-Mart. Canadians weren’t fickle – they just wanted what they experienced with Target in America.

Which leads me to my second key concept – Who is your customer, and what do they want? If the executive team in Minneapolis had considered those questions, the outcome may have been very different. In this case, consumers were cost-conscious shoppers who wanted something different than Wal-Mart (and for that matter, Zellers). Despite their continued success, we all know there is a reasonable percentage of the population who shop at Wal-Mart on a regular basis, but would appreciate a retailer with a bit better service and a more upbeat environment.

Those were Target’s customers, and what they wanted was what Target had given them on previous cross-border shopping trips. The launch strategy needed to take those thoughts into consideration. I appreciate that retail competition is fierce, regardless of the market, and Canadian Tire, Loblaw and others are going to push back on any emerging threat. Target, however, needed to strike a balance between gaining some level of critical mass, and launching well in each location. The Zellers strategy was absurd.

Answering the What do they want? question and implementing the Canadian strategy isn’t easy, but here are a few thoughts while I am Monday-morning quarterbacking:

• Location, location…you get it – Start with fewer stores, but perhaps a regional or large center strategy, and expand in a controlled manner. The stores themselves need to appeal to all 5 senses.

• Establish the Supply Chain – Military strategists know their troops are nothing without food, supplies, weapons and shelter. While most Canadians recognize that prices in Canada will always be marginally higher for many products than in the U.S., the delta here was too large. Work with suppliers to establish distribution, warehouses and inventory to effectively manage Target-esque goods at the right price. And no empty shelves.

• Hire early, and train, train, train – Employees in this environment can be a key differentiator with Wal-Mart. Hire for personality, attitude and problem-solving, and let them get at it.

• You can buy that on-line – No on-line retail operations in Canada? We have the Internet here too. Critical, especially in the controlled launch strategy above for Target’s physical operations.

As consumers, we will get over this. The 17,000 employees, while treated reasonably well with 4 months severance, are left in the lurch, and many of these people left other jobs to work for Target. Creditors, landlords, Canadian suppliers and others are also waiting in line as the corporation proceeds through CCAA. Many of these partners will get pennies on the dollar for their investment in Target’s Canadian fiasco.

Target’s Canadian strategy lacked a customer perspective, some simple considerations that seemed to elude leadership. Everything about this situation has evolved so quickly over the past three years, where all that remains will be a case study in what not to do, and multiple stakeholders footing the bill for a half-hearted northern strategy.