By George Anderson, RetailWire
Target, by its own admission (see the YouTube video below), has made a mess of its business in Canada. The company has lost about a billion dollars since it began operating up north and, while it has pledged to do better, not everyone is convinced it will. In fact, Credit Suisse has gone so far as to suggest that Target's new CEO, whomever that turns out to be, should seriously consider getting out of the Canadian market altogether.
In a note to investors, as reported by The Financial Post, Credit Suisse analyst Michael Exstein wrote, "We think it may be more prudent for Target to cut its losses and devote 100 percent of its resources on the U.S. — which comprises over 97 percent of the company's current sales."
Target is looking to roughly double the $1.3 billion in revenue it generated in Canada during fiscal 2013 without the $941 million in losses that went with it. A lot of people are counting on the chain to succeed, including the more than 20,000 individuals it employs in Canada.
Discussion Question: What are the biggest challenges currently facing Target in Canada? Do you think Target should bail on the Canadian market?
Comments from the RetailWire BrainTrust:
Dick Seesel, Principal, Retailing In Focus LLC: It's premature for Target to pull out of Canada just over a year since moving in. The company has too much invested in real estate (which they acquired for a bargain price), infrastructure, organization and corporate pride to throw in the towel this quickly. There are some clear lessons learned from the 2013 results that are correctable, starting with inventory levels and pricing. Target is going to have to be a lot more aggressive on both fronts if it intends to gain market share and cover its investment and costs.
The Canada experience is symptomatic of what ailed Target overall: Too much caution, too slow to react, too much faith that the "brand" (versus good execution) would carry the day. With luck, the interim CEO is addressing these cultural issues quickly, even during the search for his permanent replacement.
Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.: Either Target needs to invest the resources to understand Canadian consumers or needs to leave the market. The Canadian market is not an extension of the U.S. market and is not homogeneous. While the U.S. has been described as a melting pot (certainly that term is a debatable description of today's U.S. market), Canada has been described as a mosaic. The significant implication is that differences among consumers exist, are accepted and celebrated. The resources needed to understand this market will be significant. Invest the resources, learn about how to adapt to different markets, or remain a U.S. domestic company.
Steve Montgomery, President, b2b Solutions, LLC: Target has acknowledged many, if not all, of the mistakes it made during its entry into Canada. Admitting you have a problem is the first step to recovery.
The next steps are not easy but doable. The infrastructure is in place, the stores are staffed, supply line exists, etc. Finally, as Dick pointed out, Target got into the market at a price it will not be able to replicate should it withdraw now and then decide to reenter.
Paula Rosenblum, Managing Partner, RSR Research: I agree with Dick Seesel. It's way too soon. If Canada was located halfway around the world, I might say "yeah, it's a distraction," but I can't see any reason why whatever is done to remake U.S.-based Target won't be pretty close to what Canadians want as well.
Strikes me that the problem is clear in both countries; lost differentiation (or in Canada's case, "never found" differentiation). I don't see any reason to run away. The company has enough cash to work it through and it's going to need a new CEO with a new vision anyway.
David Livingston, Principal, DJL Research: First Target took horrible Zellers locations no one else wanted. It would appear the former CEO was overzealous and took available locations rather than build ground-up in new good locations. Zellers had run them into the ground so deep that Target will have to do better than a mediocre effort. Consumers associate those locations with negative experiences.
Oh sure, if Target sticks it out they will get better. Just like Fresh & Easy kept getting better and better until they pulled out. There is no place for Target to go but up, but they are so far down they could double their sales and still be well below market. Target's best effort just isn't good enough in Canada. They would need new and better locations, and we know that's not happening. Even if Target did have good locations, it would take several years to overcome their mistakes. I doubt that short-term minded investors have the patience, and therefore, Target needs to put on the brakes, regroup and go home.
Bill Davis, Director, MB&G Consulting: Target should stay in Canada for now, but should minimize its losses as it learns about doing business in the Canadian market. I would suggest focusing on getting the business running much more smoothly, 90 percent-plus of their effort, as opposed to any growth initiatives, because it's clear the cost structure is out of whack right now, with $1.3 billion in revenues and $941 million in losses.
Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions: Note to Target: Don't bail out of Canada. Get the right lead dog to navigate through the Canadian path. It is obvious those in the lead did not understand the Canadian marketplace or customers. It appears you can't paint the Canadian shopper with an American brush.
Gene Hoffman, President/CEO, Corporate Strategies International: The big current challenge for Target is to face up to the reality that its board and past management took themselves too seriously and Canada too lightly. It has resulted in a quick billion dollar loss in Canada and produced only three percent of Target corporate sales. Now that Target has sobered up, it must decide if additional investments in Canada have the potential to get a healthy return in that land north of Montana.
To the second question, YES. Target doesn't have the street-level business smarts and infrastructure right now to play in two diverse ball parks.
Gene Detroyer, Professor, Independent: If Target wants to grow, they MUST grow internationally. The U.S. market is mature and total U.S. domestic growth will not exceed 2.2 percent for the foreseeable future.
The Canadian sortie was a disaster for Target, but it could prove a learning experience on how to take one's business to another country. Target must understand that from physical execution to understanding the customer, expansion into other countries is not a "copy/paste" exercise.
Walmart initially made similar mistakes in regard to customers in other countries, but they fixed them. After the failure of its international expansion in Germany, China and South Korea, Mike Duke (former CEO) said that Walmart had learned from past mistakes. "We must be more sensitive to local issues ... We must understand global needs and trends." They established a new President for emerging markets with the aim to spot in advance national differences. Today, Walmart International operates more than 6,100 retail units (55 percent of the total) in 26 countries outside the U.S. In fiscal year 2014, Walmart International net sales exceeded $136 billion (29 percent of their total, and growing).
Target must approach international expansion in the same way.
Through a special arrangement, presented above is the discussion from an article originally published on RetailWire. Read the entire RetailWire discussion here: http://www.retailwire.com/discussion/17655