Spotlight on...Target's Canada debacle
Target Corp closed its Canadian doors for the last time yesterday
Just days after the closure of its remaining Canadian stores, just-style explores how empty shelves, mismanagement and over-hype combined to force US retail giant Target Corp to admit defeat.
Last weekend, discount retailer Target Corporation closed its final three stores in Canada, around a month ahead of schedule. By Sunday afternoon (12 April), the company's local website had also ceased its operations, while Target's three distribution centres and its Mississauga headquarters have already been shuttered.
The decision to leave Canada - which was announced in January - led to the closure of all 133 stores in the country, leaving over 17,600 workers without jobs, and came as part of a US$2bn cost-cutting programme designed to put the retailer "on a clear path to growth".
Examining the failures of Target Canada Co and its implications for the country's retail market in a recent webinar, Randy Harris, president at publisher at Trendex North America, says the exit was "not because other retailers did something right, but because Target did just about everything wrong".
"Rocky first year"
Harris notes Target's time in Canada, which began on 13 January 2011 and ended almost four years later, was a "remarkable experience." By the end of November 2013, the retailer had achieved its goal of opening 123 stores in its first full year of operation; however, the news then became increasingly worse.
Target Canada lost US$941m in its first year of operation, and this only increased in the fourth quarter as the company recorded a pre tax impairment loss of $5.1bn.
The Target Canada division, Harris said, underperformed as far as the original company forecast published, both for 2013 and 2014. There were hopes that fortunes would improve in year two but, based on Target's quarterly sales per store, they did not. "The longer Target stayed in Canada, the losses seemed to only grow or at least not improve substantially," Harris added.
Factors to failure
The webinar, 'The Target Canada Debacle: Implications for the Canadian Apparel Industry', jointly hosted by the Canadian Apparel Federation, heard that a number of factors contributed to Target's failure in Canada, with Harris revealing "seemingly everyone can agree" that the division's management did not suffer from a "lack of modesty."
He added: "Target Canada management seemed to disdain any negative comments about their Canadian operations and if they grudgingly acknowledged any, they quickly reassured everyone they were in the process of being fixed.
"No one was more guilty of this sin than Target's first president in Canada, Tony Fisher, who time after time assured everyone that Target would be a big success and any problems that the retailer had weren't numerous. In retrospect, Fisher's smoothest and most reassuring tone masked the fact that he was in over his head."
Harris includes the retailer's failure to live up to early expectations - thanks to hype generated by Target itself, the media and retail consultants - as the first failure. "Consumers, when they came into the store, were expecting it to look like a Saks Fifth Avenue but with prices comparable to Walmart".
The company began its move into Canada by buying locations from Canadian chain Zellers back in 2011. The chain was shuttered, forcing the regular customers of Zellers to search out new locations to shop - and in many cases they never returned.
The eventual launch of Target stores in the country in the spring of 2013 was marred by inventory problems and customers were left with empty shelves and higher-than-expected prices. The inability to keep stores stocked was "undoubtedly" a major problem, explained Harris, a situation which continued in spite of Target's repeated promises that they would be fixed.
After speaking to 11 suppliers, Trendex established "vendor after vendor" told Target they were out of stock and one in particular, had two palettes of product 'lost' in the Target Canada warehouse for four months.
Further exploration into the apparel department in particular, Harris noted, determined the retailer often carried the "wrong" products and brands, such as "not too many" nylon wind breakers during the winter season and "not enough" wool coats.
He added: "They were flowing the product into the stores at the wrong time."
Implications of departure
Trendex determines Target Canada's quarterly share of the Canadian apparel market was at 1.6% for the duration of 2014. This remained relatively stable throughout the year as the retailer did not open many new stores but, Harris said, it should be noted that Zellers, during its last year of regular operation, had a 3.9% share of the market.
He revealed the short term effect of Target's departure will be "minimal", supporting a statement made by Cherokee Corp, which holds a licensing deal with Target, that the demise of the Canadian operations will account for only 1.8% of the company's overall sales.
Harris added: "Without a doubt there will be a modest disruption in the mid to lower segment of the apparel market due to Target Canada's liquidation. We believe that disruption will cease by the end of May."
Based on Target's own filings, Trendex was able to estimate $5.3m was owed to Canadian apparel suppliers, with the top three suppliers accounting for nearly half of this amount. This compares with $3.5bn owed to Canadian companies in total - which Harris notes as "a little good news" to come out of the fact that so little of the retailer's product was sourced north of the border.
He added that two of three Canadians were not upset that Target was leaving the country. For suppliers, however, the move means there is now one less major retailer to sell to, with the balance of power shifting increasingly in favour of a handful of retailers.
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