How Target failed at targeting new market entry in Canada

Target is one of the most well-known names in the US retail space. With brightly lit stores, extensive and well-organised merchandise, and spaced-out aisles, it is difficult to not spend a significant amount of time at of their many stores. With stores strategically placed around the home country, it is always easy to locate one nearest to your location, without them having to compete too heavily with the other giants.

A company that had built itself over the century and imposed its presence over the past few decades, they had never set foot outside their established customer base. And when they finally did, it backfired like a choked silencer.

Why did they wait so long to enter an international market? Why did the plan fail? What were the major faults in the entry strategy?

We shall look at all these questions in this article and analyse why Target missed its target of international expansion.

Target enters Canada

With over a century on the home soil of USA, Target seemed more than established in terms of its presence and its consumer base. It had become a household name, due to its well-located stores and the extensive range of merchandise on its shelves.

After the shockwaves of the financial crisis of 2007-08 had subsided, the economy slowly began recovering. This appeared to be an ideal time to explore the possibility of an international expansion. Target decided to enter into its neighbouring market – Canada.

Many companies who feel the need to expand outside their base country, plan their new market entry very meticulously. Deep research is conducted into the market trends, consumer behaviour, economic conditions, competitors, buyer preferences, and much more. This research is time consuming and thus requires small steps to be planned towards the larger goal.

Target had huge plans with the Canadian market. And high hopes too. After all, it was their neighbouring country with a lot of similarities in culture and preferences. The market looked ripe for the taking, with no significant foreign competitor to steal their thunder. And so, Target opened up 133 stores in 2013, across Canada.

Onslaught of problems

As was hoped by the major stakeholders at Target headquarters, the Canadian consumer turnout wasn’t to be the case. Though people did line up outside the stores on the opening day, the thrill was hardly close to being ideal. The walk-in customers were not too excited to see the merchandise on display, while still half the shelves were empty. The walk-ins reduced with the passing of each day.

The HQ and the Target Canada team made the first mistake of assuming that the preferences of their intended Canadian audience were the same as the US market. Lack of proper consumer research not only devoid them of the consumer’s preferences to assort necessary merchandise, but also made them miss out on the buying preferences of the average consumer.

Additionally, the rushing of opening 100+ stores simultaneously, brought on logistical issues, which they were far from prepared for. The warehouses were stacked more than the stores themselves. Combining this with the lack of knowledge of consumer preferences, the decline started making sense.

To add to their problems, Target Canada realised a need to renovate the locations they bought from Zellers Inc. in the real estate deal. The renovation alongside the set-up of the stores only caused further hinderances to stock the shelves. In fact, in order to cover more space on the shelves, they had to stack products next to each other, rather than behind similar products, simply to draw the illusion of fuller shelves.

Why did it fail?

To begin with, their assumption that the consumers will be the same, simply because the two countries (USA & Canada) are neighbours, was a mistake. While a lot of Target shoppers in the US are locals, a significant number of shoppers in Canada were expatriates and immigrants. And as far as the Canadians were concerned, they have a certain loyalty towards the homegrown retail brands, which was never factored in.

The whole process of opening and launching the stores was conducted in such haste, that the base teams at HQ and the team set up in Canada never got the chance to conduct thorough market research. Since there was no data to infer from, assumptions were made. And that wasn’t a smart move.

Consumer behaviour was overlooked completely, while consumer preferences were presumed to be the same as the customers back home. Buying patterns were skipped altogether, ignoring the fact that base incomes are different and so are the demographics.

It isn’t a surprise to know that in the financial year 2014, Target declared a loss of US$ 4.1 Billion.

Yes, that is the amount it cost to make such mistakes while entering a new market. Fully realising that they cannot sustain operations further in the new market, they decided to shut down the Canadian operations in 2015.

The data breach of 2013, where nearly 40 million credit and debit card details were stolen from the Target database, only raised eyebrows when a potential new customer base was expected to trust them. Facing damages worth US$ 191 Million on home soil, while they were trying to set foot in another market, should have already set off red flags, indicative of areas they need to tend to prior to making such a major move.

While the problems kept mounting right from the onset of the international expansion project, the senior management kept assuring stakeholders that it shall all be smooth sailing from here onwards. Only, that never happened.

With pressures mounting, the Chief Executive Officer (CEO) of the USA operations, Greg Steinhafel resigned. On the other hand, the President of Target Canada, Tony Fisher was let go by choice. The reasons remain undisclosed.

Important takeaways

• Market Research – this is an extremely important step ‘before’ entering a new market. Understanding the market dynamics and the specific economic conditions that govern it, is of utmost use when planning an entry into a fresh market. Generally, it is an ongoing process, which relays into the various phases of the brand’s life in the particular market, helping adapt to changes that occur within the market.
• Consumer Preferences – the preferences of consumers can vary within a single market, let alone in different ones. Conducting thorough surveys, gaining feedback, and analysing the feedback can play a significant part in gaining access to the general mindset of the consumers, which can be further modelled to target the potential customers. This stage involves a lot of data and analysis but can prove to be a game-changer for the brand.
• Behavioural Patterns – slightly in-depth study of the targeted consumers can help join the dots between the buying preferences and the economic conditions which impact the buying power of the purchasers in the market. It will be indicative of the acceptance capacity at various stages.
• Logistics and Supply Chain – opening a large number of stores at the same time, works only when the necessary research has been conducted and the merchandise has been set according to the buyer’s preferences. The warehousing should be in-line with the demand on the shelves, and the supply to the various locations must be planned in accordance with the same.
• Assumptions – there isn’t much room for assumptions in business, and definitely not when eyeing a new market altogether. Critical decisions are better made when based on facts.
• Decision-makers – expansions into new markets are a bold move for any company, and the decision-makers play a crucial part in it. The ability to take chances based on raw data is good, but not when it based just on hope.

What did Target learn?

After shutting its Canadian operation in 2015, Target realised its need to consolidate itself on its home grounds. They also needed to earn the trust back, which seemed to have faltered after a major data breach.

The decision was made to stay within the US and to transform its business digitally. With added security for online shoppers, the US-based brand began its resurgence. They targeted remodelling 30 stores and 200 fleets for a better customer experience. Under the leadership of Brian Cornell, Target made a healthy comeback, showing the world what it meant to learn from one’s mistakes.

With a renewed focus on the US market, Target is adapting to the changing needs and technologies with carefully planned strategies.

What is your take on the possibility of another attempt at international expansion? Should Target set a new target?

Let us know in the comments below.