It has not been a great 18 months for Target. The retailer announced earlier this month that it would close down its entire Canadian business, shutting 133 stores and laying off nearly 18,000 people. This will cost the company pre-tax losses of $5.4 billion for Q4 2014, not to mention to-be-determined continued losses into 2015. Quite a humbling – and expensive – experience for Target’s first foray outside its home market of the US. What’s more, the Canada failure came on the heels of the late 2013 data breach that compromised the credit and debit card information of 70 million people.

That’s a lot of loss for a short period of time, and not just in financial terms. The customer trust and loyalty that Target has lost due to these events are harder to quantify, but arguably just as damaging. In today’s connected, always-on world, consumers’ expectations of retailers have never been higher. This isn’t news to Target in the US, where the retailer has had great success meeting and exceeding those expectations. For example, the company is widely cited as a leader in using analytics to drive decision-making, and it survived the 2008 economic downturn while other iconic US big-box stores went bankrupt.

What went wrong? How did decision-makers at Target make so many costly miscalculations in Canada?

Speed above all else

Consumers today have access to abundant information about and by retailers via a variety of channels and are more willing then ever to switch loyalties between brands due to poor experiences (see my colleague Tim Walters’ post and report on the CEM imperative, which goes into this in detail).  This means that companies must be able to continually engage with customers across those channels, be they in stores, online, via call centers, and so on.

In entering Canada, however, Target prioritized speed in building its physical presence over pursuing a customer-centric strategy. It spent $1.8 billion to acquire the leases of Zellers, a struggling Canadian retail chain. Walmart had successfully entered Canada nearly two decades earlier in a similar fashion, buying up leases of Woolco stores from Woolworths, as a way to get around the difficulty that new retailers encounter in Canada of finding suitable locations.  In addition, to co-ordinate its overall marketing strategy in Canada, Target chose MDC Partners, which in turn co-ordinated among several other Canadian agencies. After renovating former Zellers properties, Target opened over 200 stores during 2013 and 2014, with a media blitz accompanying the first openings. It was a big splash that set high expectations.

Expected experience ≠ delivered experience

Canadian consumers, despite having numerous discount and big-box store options to choose from, were looking forward to Target coming to Canada, Many Canadians were already aware of Target, having shopped across the border in US stores and viewed and shopped on Target.com. However, they were disappointed when they discovered that Target chose to offer a different product selection in its Canada stores than that in the US stores and on Target.com. As one Canadian customer put it on Target’s Facebook page:

…. we were excited when we heard you were coming, you disappointed by changing the dynamic of the store. Canadians loved the American stores…you had a perfect example in front of you but you chose not to duplicate what worked but change it. We live next door to you…that’s why Walmart works here (despite the fact most of us hate it). They stayed true to themselves. You should have done the same.

Even worse, however, was how Target’s supply chain in Canada proved unable to keep all those new stores stocked. Instead of coming into stores that they expected to be full of the brands they had seen in US stores and online at Target.com, customers saw empty shelves, as in this photo (courtesy Belus Capital):

or this one:

It wasn’t exactly “Soviet Russia,” as one Target customer put it, but it was definitely not the experience that Target set expectations for in Canada.

Lessons learned

Target prioritized speed to market over learning about and communicating with the customers in that market. It was as if the opportunity to acquire all that Zellers real estate at fire sale prices blinded Target to what it is famous for in the US: putting the customer at the center of its business. Entering a new country is tough, even if that country shares similarities in language and culture with your home market, as the US and Canada do. Different currencies, regulations, taxes, infrastructure, cultural norms like holidays, and consumer expectations steepen the learning curve for foreign retailers entering new markets (for more on this topic, check our our report Cross-Border E-Commerce: A Maturity Roadmap and Partner Selection Guide).

Target overestimated the degree its existing internal capabilities could handle international expansion. Target seemed to think that if it had an agency marketing that was Canadian and had retail experience, it had all the on-the-ground understanding it needed.  However, the Canada of today is not the Canada Walmart entered, when physical presence, low prices, and mass media advertising campaigns were the primary way for big box retailers to succeed, and when consumers did not have smartphones, social media, and comfort with online shopping. In their haste to get up and running in Canada, Target missed out on some key opportunities to get to know their new customer base and interact with them. In addition, they appear to have assumed that they had enough internal commerce integration, localization, and supply-chain expertise from the US that they would not need help from an external partner in Canada. Engaging with an agency or consultancy that had experience with complex commerce, globalization and localization, and supply chain initiatives – of which there are an abundance on both sides of the border – could have saved Target a lot of grief later on. 

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