Case Study — Target’s Failure in Canada
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Why Target Company Failed in Canada
PART 1
Summary and Reflection
What a tough a market for retailers with a skeptical knowledge about the Canadian –US market. Not many thought Targets was going to flip-flop from day one it was launched in Canada after the purchase of the Zellers stores. The Canada-America border business is more qualitative in growth as many Canadians who live close to border towns love to shop in America. The love for the American merchandise has made many retailers from America relocate to Canada to extend their services to customers who are familiar with their products or to the new customers curious to test their fresh products (Northrup, 2016).
Ø It has been the dream of Target Company to expand in Canada after the venture in the discount business and little did know of the nitty-gritty under the surface of the foreign markets such as the commercial, cultural, currency plus the tough completion from competitors. Cheap chic business and low price strategy was a plan to make customers switch, and it indeed worked cleverly during their opening days.
Ø The buyers flooded their stores all over Canada to catch up with the fresh American goods with low prices. The low discount strategy set Target way above the graph and its management quickly jumped into vague assumptions by the time they were projecting the future (Dahlhoff, 2015). The next big challenge was to maintain the high frequency of the customers who flocked their shops from day one, but they spoiled the broth when customers discovered the absence of most of the products on their Ads or flyers were missing.
Ø The differentiative measures between stores in US and Canada were something Target Company never emphasized upon and make it big like counterpart Walmart. Therefore, Target CEO Brian Cornell decided to shut down most of the stores after evaluating that they are better off inactive since they prevent Target from generating new future loses in Canada. Putting additional energy upon its online development and expansion just like the Walmart did it was the black spot to the Target & rather it focused on the physical stores’ expansion and neglecting Zellers ex-workers out of their task force showed the nature of their exclusivity to local labor.
Ø The labor unions in Canada are much stronger than the federal government and down playing with local employment rate could let them escape free from being excluded by local buyers (Wahba, 2015). Federal laws channeled upon the health source of manufactures resource was made mandatory by the local competitors just to burden Target on its logistics analysis hence sluggish chain of distribution leading to empty stocks or few merchandises.
Ø The Canadian Culture is versatile, and the demographic distribution is sparse however still business companies make the profit as usual. The Target need for expansion is viable in Canada if only the following measures can be appropriately evaluated before their implantation;
Target’s Next Step Forward
ü Embrace Work Diversity
Work diversity means inclusivity of different skills, knowledge, and abilities on the decision-making table for the company to outshine the diverse cultural challenges in foreign markets. The foreign market in Canada is composed of consumers from a different trend of cultures making different buying decisions depending on their taste. Yes, it was easy to trick them with low discounts during launching, but the CEO of the Target Fisher was not keen to investigate whether growth was in their long-term plans.
ü Future Anticipation
The anticipation of the future profit in Canada while already the company is flopping does not help it from falling. Therefore appointing new CEO is the next move for Target to come back fresh in the business to achieve expansion. The new CEO proposal of the immediate shut down of all stores in Canada is a great deal to save the company from future losses.
The new management can recommend adding work diversity to fish for the local skills to beat the local competitors who were initially underestimated (Randall, 2016). The art of underestimation in a business war gives your opponents power of beating you shamelessly just like they did to the old CEO Mr. Fisher since he underestimated the local business rivals.
ü Improved Tech Skills
A quick focus on physical expansion was a step back for the old CEO of the Target rather than pointing more skills on the new technology just like it did with its online stores in America. The exit of Zellers into business created a loophole for the Target market group to make a quick move into the market without considerations of the nitty-gritty of the business development.
The development of the Target physically is quantitative in value since it owns and runs many stores across Canada but deep down financial analysis rules it out as a slow train for business growth and expansion. Expansion in Canada has been a big dream for the Target Company, and they mapped it smartly in the beginning, but the only problem is that they failed to evaluate the end from the start and is up to Target to choose either the broad way or the narrow way to reach its business peak.
PART 2
Evaluating Target’s Chosen Method of Expansion
a) Did Target Pick the Right Method of Expansion?
From the case study, the method of expansion was FDI by acquisition. In essence, this method was appropriate at the time, and it has always been effective in its own right. Now, as much as Target picked an effective method to expand its operations, it is obvious that the company failed in some ways (McMahon, 2015). For instance, it underrated the possible risks associated with FDI acquisitions such as cultural differences, language barriers, and legislative issues in the targeted country.
Target Canada failed at implementing the FDI acquisition by ignoring various nuances relating to foreign takeovers. In a way, the company’s failure can partly be blamed on the fact that it was its first expansion outside the United States. Thereby, the company had no experience at all. The management assumed that the Canadian market was similar to the United States.
Of course, these two countries have similarities that a normal shopper (or investor) might not notice. For instance, both nations have relatively similar buying and consumption behaviors since the American media largely influence Canadians. Also, these two countries are not only neighbors but also have a long history of alliances whereby Canada is usually the first stop for American businesses. Better yet, the NAFTA pact is something that has always driven American companies to venture into the Canadian market.
b) Poor Execution Was Notable
Target Canada failed miserably, and this was attributed to poor execution. The company also failed at doing its homework. If they had done thorough research concerning the cultural differences and nuances, then the retailer wouldn’t have faced such humiliating failure. Nonetheless, there are lots of differences between Canada and U.S., as Target came to realize later. For example, Canadian buying culture is that consumers are so much into low prices and discounts.
Given that Target priced its goods higher compared to its competitors; the company was bound to fail, eventually. The reason for this is because Canadian prefers comparing different prices, and they aren’t into “one retailer” loyalty like in the United States. This means that if a product has a higher price, then the Canadian consumers will look away and buy the same products from another retailer.
The company should have considered alternative expansion methods such as franchising and joint ventures. Rather than taking over the entire Zellers retailing company, Target would have started small by franchising its services to Zellers. This way, the retailer would not have incurred huge losses as it did. Starting small would have helped Target get to learn from Zellers on how the Canadian market looked like, thus having a better understanding of its target market (Wahba, 2015).
c) Joint Venture Would Have Been a Better Option
Joint ventures usually come with lots of advantages (Randall, 2016). For example, if Target had taken a different approach and decided to join Zellers in offering retailing services, then it would have reduced its risks since the two companies would have worked together in minimizing expenses and losses. Zellers, being a company that had operated in Canada for many years, would have offered its advice on how the Canadian market works. More importantly, Target would have learned the logistics concerning operations in Canada compared to America’s.
The company surely made various logistical mistakes. A case in example is when Target decided to use similar technologies they use in the United States, forgetting that most Canadian vendors had adopted newer and much more advanced techniques than the United States. This means that whenever the retailer made procurement with its vendors, confusions tended to occur, which resulted in goods not being delivered hence stock-out instances.
d) Franchising, Too, Would Have Been a Better Alternative
If Target had opted for franchising as its method of expansion, the retailer would not have incurred operational losses. That is, operational costs for the company became too high then they had anticipated. In Canada, unlike the U.S., minimum wages are a bit higher at around $10 an hour. On the other hand, the U.S. minimum wages usually averages $7 an hour (Northrup, 2016).
It means that Target had to incur extra operational costs. This would not have been a problem if the company had opted for a joint venture or a franchising option. It would have helped the firm have a smoother expansion process. The firm’s FDI acquisition made a mistake by hiring a third-party organization to handle its distributions. Rather than doing its distribution, like it did (or does) in the United States, Target thought it would be okay to hire a third-party. As Target came to realize, this was a huge mistake.
It is possible that the third party had different infrastructures on how it operated, which is something Target did not observe before hiring the third party distributor. With different infrastructures, there were inconsistencies between these two partners, which resulted in empty shelves. Finally, with franchising, the retailer wouldn’t have to worry about the unions.
Unlike the U.S., unions in Canada are powerful. This means that Target failed in recognizing the significance of unions, and how they could influence the public’s opinion on consumer consumption (McMahon, 2015). In essence, if the retailer had stuck to franchising, the management would have known how to deal with the unions, which would have reduced cases of workers’ complaints.
PART 3
What Mistakes Did Target Make?
a) Target Ignored Zellers Employees
It is without that Target Canada made lots of mistakes, most of which are about management. For starters, when Target was taking over the Zellers retailer shops, the management decided to employ completely new workers. Even though the former Zellers went through the fresh recruitment process, only 1% was retained. The result was negative publicity, thus prompting consumers to shun the retailer.
b) Failed To Impress Target Market
Target Inc. had a strategy, which was to target customers who already knew about its brand and new customers. Unfortunately, Target failed to impress old and loyal customers, because their products were a bit higher in price compared to their products in the United States. Such customers were disappointed. For new customers, they were a bit disappointed because they still associated Target with Zellers. They felt Target was like a renovated Zellers. That is, Target did not take its time to revamp its various branches across the country. This was despite the retailer allocating $10 million on all 200 branches of Zellers (Dahlhoff, 2015).
c) Target Sent Employees to the U.S. For Training
Before launch, Target sent its employees to the United States for training, which lasted for many months. This was a mistake. The company should have hired the locals, mainly because locals usually relate easily with their fellow Canadians. Going to the U.S. meant that workers were bringing back the American way of life. Also, given that the employees sent to the U.S. were new people, they never knew how to relate to the local population. Worst still, when these employees came back, they realized that the technologies back in Canada were different from the U.S., thus creating more problems for the retailer.
d) Empty Shelves and Unavailable Products
Although Target recorded $83 million return in the first quarter after launching, things began going downward spiral. Shoppers started to complain of unavailable products on Target’s shelves. This drove customers to other retailers like Tire and Walmart. Also, the same shoppers decided to report that Target lacked the variety of merchandise.
e) Inconsistencies Regarding Infrastructure
The barcodes on most of Target’s products were matching their computer systems. The result was confusion and delays, which in turn chased customers to other retailers. Moreover, some packages did not match descriptions of the items. Such inconsistencies were due to mismanaged logistical processes (Northrup, 2016). The vendors, with whom Target dealt with, had the different infrastructure, which resulted in inconsistencies.
f) Underrating Unions
Target truly underrated the influence of Canadian unions. While the United States only 10% of its workers in unions, in Canada, more than 30% of workers are in unions. Therefore, when Target neglected Zellers employees, this did not go well with Canadians, which translated to a reduced number of customers streaming into Target stores. The same issue confirmed that Target had a poor Public Relations department. For instance, when the CEO was asked why Target’s prices were higher than in the U.S., he answered by comparing Canada to rural Iowa. As expected, this was a disaster.
g) Massive Data Breach
During Canada’s shopping season in 2013, Target experienced a serious data breach. The situation made issues worse for the retailer, which made customers lose confidence in Target. The uncertainty of the breach resulted in more than 700,000 customers being affected (McMahon, 2015). This made Target pause its launch of online presence, which even made things worse because other retailers like Walmart were benefiting from such presence.
h) Creative Competitors
The problems Target faced could not have been worse if its competitors had slept on the job. Instead, retailers like Holt Renfrew anticipated Target’s entrance into the market and decided to enlarge and renovate its stores. Other retailers like Bay embarked on refurbishing its stores while renewing its merchandise selection. Even the likes of Sears refurbished its outlets. Therefore, when Target messed up, there were other retailers ready to welcome the customers.
i) Failed On Geographical Expanse of Canada
Even though Canada is larger than the United States, its population is only 10% that of the U.S., which means that most retail stores are usually separated by long distances measured in thousands of miles. As usual, this brought about transport and distributions issues for Target (Dahlhoff, 2015).
j) Target Inc. Did Not Understand Canada’s Cultural Nuances
The retailer assumed that Canada had a similar market to the United States; thereby, they did not carry out enough homework. Even though Canadians are influenced by American media, their consumer behavior is unique and different from the United States. If Target had done its homework, they would have understood how Canadian market behaved. For instance, Canadian consumers tend to compare prices with other retailers, and so when they noticed Target’s higher rates, they were disappointed. They also love fresh groceries.
References
Dahlhoff, D. (2015). Why Target’s Canadian Expansion Failed. [online] Harvard Business Review. Available at: https://goo.gl/9JykFG
McMahon, T. (2015). Missing the Mark: Some Five Reasons and Explanations Why Target Failed in Canada. [online] The Globe and Mail. Available at: https://goo.gl/f6aSjf
Northrup, L. (2016). Fifteen Things We Learned From Target’s Downfall in Canada. [online] Consumerist. Available at: https://goo.gl/Z1asvc
Randall, K. (2016). Target misread its Canadian shoppers and retail market: business expert. [online] CBC News. Available at: https://goo.gl/QZRPGb
Wahba, P. (2015). Why Target failed in Canada. [online] Fortune. Available at: https://goo.gl/ryaetb
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