The news that American big-box giant Target is throwing in the towel on its Canadian operations—shutting down 133 stores, laying off 17,000 employees, and writing down a $5.4 billion pretax loss for Q4—exploded across the Web today and, within hours, also became a succinct lesson in how not to operate a retail chain.
As one analyst told Reuters: "Anything you could have gotten wrong in the playbook, they got wrong."
Most retail experts agree that Target's problems were principally operational ones. But the subtext of the chain's failure also deals with perceptions, culture and, it seems, no small amount of American corporate arrogance. In short, the lesson Target learned was that being popular in the U.S. doesn't mean that shoppers across the border will automatically care.
For example, while successful chains that expand internationally tend to do so incrementally and with caution, Target pretty much took Canada like an invasion force.
"It was too much, too quick. They basically bought over 120 stores and launched all of them at once,"said Toronto-based Bruce Winder, senior advisor at J.C. Williams Group. "There's a perception that they might not have done their homework, not taken Canada seriously or thought it was easy."
Indeed there is that perception. "Can't expect American execs to know Canadian market," posted one shopper on Twitter. Said another, "American retailers need to plan more carefully when coming to Canada."
The problem of American chains presuming that Canada is "just like here only colder" is not a new one. American food chains (Chi Chi's and Ben and Jerry's among them) have gotten their tails kicked by going north of the border—not just by the anemic margins that result from operating in a higher-tax environment, but also by failing to understand the cultural differences.
Target also seems to have overlooked the fact that 90 percent of Canadians already live within an hour's drive of the United States and many routinely shop at Target locations stateside. Hence, Target was not so novel and new, a fact that made Target Canada's higher prices and poor selection all the more baffling.
"Canadian consumers shop plenty across the border," said Sucharita Mulpuru-Kodali, a retail analyst with Forrester Research. "Target failed to replicate that experience, and that hurt them."
And then there's the presumption—one that U.S. chains like Aeropostale, Sam's Club and Big Lots have also made to their detriment—that there's a need for an American brand in Canada simply because it hasn't existed there before. As ShoppingBlitz president Hugh Sinclair puts it: "When entering a new market, a company must convince customers that their products and services add value to the current marketplace."
So, how much value did Target add? Apparently not enough compared to the retailers that have already staked out Canadian soil. After all, Walmart has 391 locations across Canada, to say nothing of famous Canadian department stores like Hudson's Bay, doing business since 1881.
In fact, Target made its entry to Canada through its 2011 acquisition of Canadian chain Zeller's, whose former locations Target took over. And while Zeller's—the discount store with the Zeddy the teddy bear mascot—had gone decidedly down-market in its later years, many Canadians are now clamoring for the chain to reopen.
"I still miss Zeller's!" said one tweet today, prompting another to respond with signature Canadian wit: "Yes please. Bring back those dirty stores with a horrible selection instead of the clean stores with no selection."