Breaking down Target's Canadian launch

Target’s expansion into Canada in 2013 was met with high expectations, and a level of excitement, all of which was decidedly missing when Walmart made a similar move in 1994 with the purchase of 122 Woolco stores.

The fiscal year generated $1.3 billion for Target, and the team operated with a gross margin rate of 14.9 percent. Although this was below the company’s expectations, considering the volume of openings – 124 in less than a year, these results would be considered a win by many retailers (although operating losses for the next two years are a tough metric to swallow). 

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The quarter-by-quarter sales are increasing at a faster rate than the number of stores. However, the concern is the low margin rates in the second half of the year as the retailer began to clear excess inventory. 

 

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Strangely though, this isn’t what the customer is seeing. Empty shelves have been the widely reported inventory story in the country’s media. At a dinner party this past weekend in rural Ontario, the consensus around the table was that the company was “selling out” of merchandise too quickly because the company wasn’t buying enough. 

Image by Doug Stevens via The Wall Street Journal Blog

Image by Doug Stevens via The Wall Street Journal Blog

Much of the retailer’s launch shows consumer perception at odds with what the business is telling the merchant and buying team. Initially, Target had indicated that the higher-than-expected demand attributed to the lack of inventory. However, almost a year into business it indicates a larger distribution and allocation issue with the retailer.


Is it possible that Target’s sales plans would never have allowed the buyers to fill store shelves? Typically if a retailer is missing its sales plans, as Target is consistent in suggesting, it results in the opposite issue of too much inventory in-store.


Pricing perception is another issue that both the media and consumers have embraced. Higher pricing is something Canadians are particularly sensitive to as higher duties and shipping costs often put goods just south of the border 10 to 15 percent less expensive on average. Target has always understood this, and despite multiple pricing surveys indicating Target is on-par with their Canadian competition, consumers believe they are being over-charged for goods compared with US Target stores.


A feature unique to Canada’s retail landscape is the brand and product exclusivity the country’s major players have secured. Unlike most countries, Canada has only one or two national players in each market category. This lockout may have prevented Target from forming key relationships with suppliers immediately in the country.


The retailer managed to secure some excellent working relationships regardless, a grocery partner was announced almost immediately and the Starbuck’s partnership soon followed. Many apparel designer collaborations, which Target has become known for, were rolled out in Canada including Peter Pilotto and 3.1 Phillip Lim. 

Announcements with Root’s Beaver Canoe brand were a bit later, the exclusive home collection not to launch until September 2013, and Aliment du Quebec in the same period.

 

Despite Target’s initial challenges with inventory and distribution, some product assortment hurdles, and diminishing pricing concerns, it’s surprising the Canadian consumer hasn’t embraced the many social efforts of the company.

Image via https://www.facebook.com/TargetCanada

Image via https://www.facebook.com/TargetCanada

Their marketing is downright clever and suited perfectly to the market. It combines national pride, humo(u)r and friendliness which appeals to the broader population. In addition, Target has a full collection of stores which are all LEED certified – a remarkable feat considering they purchased their locations from HBC.

 

Target also distributes 5 percent of its profit through local community and social programs. School nutrition programs, Lac-Megantic Relief efforts, and Alberta flood relief have all benefited last year.

 

This reinforces the truly national focus the retailer has taken, embracing both major cities and small-town Canada. Their launch events featured storytellers in Halifax, the three tenors in Toronto, free Christmas tree farms in Sudbury, a hockey tournament in West Ferris, an art installation in Edmonton, and Carly Rae Jepsen in Mission BC.

 

Although Target has secured only 0.2 percent of Canada’s coveted grocery market to-date, we expect they will come out on top.  

 

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