Thursday’s announcement that Target will withdraw from Canada puts an end to its failed foray in the Great White North. The expansion has been an expensive one for Target, which will record $5.4 billion in pre-tax losses, and a net loss of more than $2 billion.
This begs the question: How could this happen to one of the smartest retailers of our times?
The answer is simple: Failing to follow the basic principles of retailing in our world today.
1. Understand consumers and location
Location, location, location. While geographically and culturally very close, there are huge differences between Canada and the U.S.
Target entered Canada by taking over the leases of 220 stores from Zellers, a Canadian discount retailer, which were mostly located in strip malls. Unfortunately, many of these stores were not in the locations where Target’s typical customers tend to shop. Additionally, the stores did not fit the well-proven format of Target in the U.S.
Context or location trumps everything!
2. Follow your brand promise and deliver
High expectations are a great starting point, but not if you can’t deliver.
Canadians had positive perceptions about Target — from visits in the U.S., to its American products (like Cherry Coke and peanut butter M&Ms), and to its cheap-chic offerings. But Target’s Canadian operations were neither cheap (Walmart undercut Target systematically on price) nor chic (Target lacked the exciting merchandise that Canadians expected). Plus, Target launched an exciting advertising campaign that only raised expectations further.
The lesson is simple: There is nothing more wasteful than to communicate an empty promise!
3. Retail is detail
It’s the old adage of retailing, and yet still retailers miss it. Geographically, Canada is huge relative to its population size. Stores are more dispersed and so are consumers. This requires different operational processes.
Target’s formula did not adapt well. Inventory problems and out-of-stock products followed and harmed its image and drove financial losses.
4. The customer is king
Repeat after me: The customer is king. Always was, always will be.
But today, the king also holds a gigantic megaphone. It is the always-on, always-connected consumer that amplifies frustrations through social media while still in the store. When the store does not deliver, the consumer uses her social currency and tells her network to think twice. The demise is relatively quick and sharp, as it happened with Target in Canada.
Retail is a hyper-competitive sector where mistakes and empty promises surface immediately and gets shared instantly. There are many successful retailers that globalize. Zara, Starbucks, Uniqlo, Aldi, and Lidl have built their brands across borders. All the same, there is no money that can correct perceptions fast enough.
As far as Target goes, this is a good time to reinvent itself and focus energies on home turf.