Target

INTERNATIONAL BUSINESS

Why Target’s Canadian Expansion Failed by Denise Dahlhoff

JANUARY 20, 2015

It was a brief stint for Target in Canada. Less than two years after opening there, Target announced last week

that it would close its 133 Canadian stores. Some Canadian Target customers responded emotionally to the

news on Target Canada’s Facebook website (“totally heartbroken,” “please don’t go,” “good riddance,” “you

obviously don’t understand Canadians”).

Target CEO Brian Cornell decided to close the stores after determining that they would not become profitable

until at least 2021. The market exit will stop Target’s continued losses in Canada and help the company focus on

its strategic initiatives in the U.S. such as smaller stores in urban places, mobile and online, and its cheap chic

merchandising focus—to “be cool again,” as Cornell told Target employees in the fall.

What caused the retailer’s problems in Canada, and what are the lessons learned?

In Target’s annual 2012 report, then-CEO Gregg Steinhafel mentioned Target’s “two years of exceptional

dedicated and hard work” to prepare for the international expansion. However, in the end, the market entry

seemed rushed and oversized, with 124 stores opening within ten months.

The Canada expansion was announced in January 2013 when Target bought the 220 leases of Zellers, a

declining and now defunct Canadian discount chain, from Hudson’s Bay. Target opened its first stores just a

couple of months later despite the enormous remodeling work required. Maybe taking over the Zellers leases

was too good an opportunity to pass up. But it may have led Target to launch with a bigger footprint than

advisable.

Global expansion had been on Target’s mind for some time, and growth through physical stores rather than e-

commerce seemed to be the retailer’s preferred path. Canada in particular held appeal as it is not only

geographically close and mostly English-speaking but also because Target is familiar to the many Canadians

who had visited the stores in the U.S. In addition, Canada was less affected by the recession than the U.S.,

increasing the appeal of a Canadian venture. What Target may not have fully appreciated was that the Canadian

discount sector is a particularly tough market. Unlike the luxury segment, the discount market is fairly

saturated by competitors such as Wal-Mart, Costco, Giant Tiger, and Sears.

To entice shoppers to switch, Target had to differentiate itself from all the other discount retail choices. It also

had to address two kinds of customers in Canada: those already familiar with the retailer from their U.S.

encounters and those new to the brand. While Target did a great job marketing its launch with a multiplatform

ad strategy—TV, print, billboards, social media and so on— introducing itself as the new neighbour (notice the

localized spelling), its execution was flawed.

The store locations were often out of the way, and stores weren’t up to par with Target’s U.S. look. The new

stores also struggled with distribution challenges and shelf replenishment, leading to stock-outs. Particularly

for Canadians familiar with Target, the poorly stocked shelves, an assortment that differed from the U.S. stores’,

and, often, higher prices than in the U.S. all combined to discourage traffic. These issues also made it hard to

win customers who were new to the brand. First impressions count, and once customers are disappointed it’s

hard to win back their trust. Given the executional issues, Target wasn’t able to implement its differentiated U.S.

concept in Canada.