Why Did Target Fail in Canada?

Описание: If IKEA represents Sweden on the world stage, Walmart might just be the equivalent for the United States. Despite being considered one of America's "most iconic" brands, more than half of Walmart's locations are found outside the U.S. The retail giant boasts 10,623 stores spread across 24 countries, 46 different brands, and 4 continents, with locations ranging from Botswana and El Salvador to the perhaps equally intriguing Ohio. Target, however, maintains a presence solely within the U.S. Throughout its 120-year history, Target only once ventured abroad. This attempt involved launching over a hundred stores in Canada within two years, only to face a catastrophic failure, costing the company seven billion dollars and serving as a cautionary tale of international expansion gone wrong. The debacle was so infamous that it inspired a two-act play, performed in one of the deserted Target locations.

The saga of Target's ill-fated venture into Canada begins with Zellers, a national chain of discount department stores that was once a Canadian household name, akin to a less sunny, more courteous version of Kmart. By the early 2010s, Zellers had become a relic of the 1990s, limping towards obscurity not unlike other once-dominant retailers such as Sears or K-Mart. Instead of descending slowly into bankruptcy, Zellers chose to monetize its most valuable asset by selling its property leases, which were still of significant worth due to their locations across Canada. Target, at this time, was facing market saturation in the United States. After years of robust growth averaging 8% and culminating in nearly two decades of expansion, the pace had slowed significantly, with only 10 new stores opened in 2010. Canada appeared as an attractive expansion opportunity, lying just 225 miles north of Target’s headquarters in Minneapolis. Cultural and linguistic similarities between the U.S. and Canada, along with significant cross-border traffic—approximately 300,000 people per day—bolstered Target’s decision. The company had recognized brand awareness in Canada, where one in ten Canadians had reportedly shopped at a Target in the U.S. the previous year. Given the success of several U.S. retailers in the Canadian market, the idea of expanding north seemed promising.

The opportunity arose in 2011 when Target acquired 189 leases from Zellers for 1.8 billion Canadian dollars. Of these, 54 leases were quickly sold to other retailers, including Walmart. This purchase, however, came with a significant challenge: time was of the essence. Target had to rapidly convert these sites from dated Zellers stores to the sleek, modern Target format—an extensive process requiring an average of $10-11 million per location. The urgency was driven by the need to minimize disruption and vacancy, which could negatively affect other tenants and reduce shopper traffic. This rapid transformation was encapsulated in what Target dubbed "Project Bacon," which kicked off with the opening of three stores in Ontario by March 2013.

Despite the swift rollout, which saw a new store opening every two days on average—the fastest expansion in Target’s history—significant issues quickly emerged. Chief among these was inventory management. Many shelves in the new Target stores remained empty, with promotional items frequently out of stock. This was traced back to a pivotal decision to implement a new Enterprise Resource Planning also known as the SAP system. The new system needed to handle multiple new variables, including bilingual product descriptions, metric measurements, and Canadian currency. The transition to SAP proved disastrous. Implementation of Enterprise Resource Planning systems is notoriously complex and time-consuming. Coupled with the tight timeline, this was bound to fail. Mismanagement and incorrect data input led to only 30% of the data being accurate, causing severe logistical and pricing issues. Which is literally the blood running through a retailers veins. Products accumulated in distribution centers instead of reaching store shelves, severely impacting sales and customer satisfaction.