consumer goods

Target’s friendly invasion

Target has a simple plan for conquering Canada this spring. First, they’ll win our hearts. Then, they’ll empty our wallets.

(Photo: Vito Amati/Target)

On a cold morning last February, Yvonne Yeung, a business student at the University of Toronto, was waiting outside a converted storefront on King Street West, a commercial strip in Toronto’s downtown. Yeung and three friends were in the middle of a long line that snaked back from the store’s entrance and around the corner for several long city blocks. A black velvet rope fenced the crowd off from the rest of the sidewalk. On the other side, young men and women in red sweatshirts strolled the line, offering free hot chocolate to the waiting clusters of fans.

At noon, after a four-hour wait for some, the doors to the store opened. The crowd surged in. And in Yeung’s words, there was chaos. “From a girl’s perspective, it was like a shopping high,” she says. “Everyone was buzzing. Everyone was excited. Everyone was grabbing for the first piece of clothing they could get their hands on.” There were so many people, the lineups to the changing rooms overflowed. Some customers tried on dresses in the aisles. “Because there was a limited supply, everyone just wanted to try on the clothes and get their hands on (them) first,” Yeung says.

High above the shoppers, on a giant billboard painted in red, three logos hinted at the mastermind behind the chaotic scene. The first was a white bull’s-eye, the second a white heart, the third a white maple leaf. Together they formed a message: Target Loves Canada. And if the crowd that day was any sign, Canada loves Target, too.

America’s second-largest discount retailer, with 1,763 stores in the U.S. and US$68 billion in sales last year, will arrive in this country in force next year. The Minnesota-based company plans to open 125 Canadian stores in 2013. By 2017, that number should climb to 165, or even more. In the meantime, Target has been rolling out a sophisticated branding operation here honed by 50 years of slow, steady and massively successful expansion in the U.S. From a family-owned Minneapolis department store, Target has grown into a discount retailing force rivalled (and still consistently dominated) only by Walmart, which posted US$264 billion in U.S. sales last year. It has done so, since the beginning, by pitching itself as having better products than the other discounters, lower prices than the department stores, and a better shopping experience than anyone in the field.

But for at least the past 20 years, what Target has been selling, more than anything else, is the idea of Target itself—the notion of a store somehow different, more vital, more fun than its rivals. The Toronto event Yeung attended was part of that campaign. A one-day store known as a pop-up shop, the day featured exclusive clothes and accessories designed by the Vancouver-raised Jason Wu, a designer known to be a favourite of U.S. First Lady Michelle Obama. Target Canada followed the pop-up shop with a high-profile sponsorship of Montreal Fashion Week and a blanket presence at the Toronto International Film Festival, where the company took over an entire hotel to host parties and media events. In smaller markets, like Vernon, B.C., and Red Deer, Alta., the company threw “Bullseye Beach” parties, with enough branded swag to fill warehouses. (Toronto got a beach party too. The company even sponsored the ferries to Toronto Island for the day.)

All the events—and the free media they’ve received—have helped fuel a mania for Target not normally associated with big-box retailers selling underwear and frozen peas. In Toronto, some real estate listings have begun noting proximity to future Targets alongside schools and museums as locational selling points. Online, more than 190,000 accounts have “liked” Target Canada’s Facebook page. (Weston’s Joe Fresh clothing line, for comparison, has only 83,000 likes). “There seem to be Target brand evangelists,” says Matthew Thomson, an assistant professor of marketing at the Richard Ivey School of Business. “These are fans of Target who spend a lot of time talking to friends and colleagues about how amazing Target is. I just hope they’re not over-hyping what Target can deliver.”

Behind all that hype lies a savvy retailer convinced there is a fortune to be made selling to Canada’s still-robust middle class. By narrowing in on shoppers who want higher-quality items than Walmart can offer but at better prices than department stores or boutiques, Target aims to charm this key demographic. This country—where families are slightly richer, slightly better educated and definitely less battered by recession—seems even more fertile ground for Target than its home turf. The company could make more, on a per-store basis, in Canada than it averages at comparable stores in the U.S., according to a report by Veritas Research. Even if those stores don’t quite live up to company expectations, Target could be hauling in $6 billion in annual Canadian sales by 2017. To get there, Target plans to go from non-existent to all-pervasive in just four short years. In the process, it will revolutionize Canadian retail.

At one end of a strip mall three exits south of the U.S. border at Niagara Falls, Ont., a large Target super-centre faces out on a parking lot half full with American and Canadian cars. On a recent Wednesday afternoon, Brantford’s Diane Mathurin pulled into the parking lot with two friends in a small SUV. The three seniors had recently all lost weight together, and they had come south looking for new clothes that better fit their new figures. Mathurin wasn’t looking for Target brands specifically. She would take “any bargains” she could get, she says. But her mission that day—good clothes at good prices—sums up what Target has been about for most of its 50 years.

That emphasis—on high-quality goods and low prices—goes back to a time even before Target’s founding, says Laura Rowley, the author of On Target: How the World’s Hottest Retailer Hit a Bull’s-eye and now a senior editor at the Huffington Post. Target, Walmart and Kmart were all founded in 1962. But where the original owners of the latter two stores came from the discount retail world, the five brothers who founded Target came from high-end department stores. (Their grandfather, George Draper Dayton, founded Dayton’s department store in downtown Minneapolis.) As a result, “the Dayton brothers were very brand conscious,” Rowley says. They never tried to have the absolute cheapest goods. They were focused instead on lowering prices through scale and efficiencies.

From the beginning, then, Target had a reputation slightly elevated from the rest of the discount world. As a result, even in its first year of operation, some customers took to calling it “Tarjhay”, as if the company were French, one of the founding Dayton brothers told Rowley in an interview for her book. That pronunciation persists to this day. “They’ve been uniquely successful in building a niche—going from a discount store, essentially, to a high-end branded retail outlet,” says David Dunne, an adjunct professor of marketing at the Rotman School of Management. “They’ve managed to pull something off that’s pretty rare in retailing.”

The modern “Tarjhay” brand, though, has more to do with specific moves the company made beginning in the 1990s than it does the old history of the Dayton clan. It was all part of what Rowley called in her book “a creeping democracy of fashion—a merger of mass and class.” As the company expanded across the U.S. in those years, it began deliberately targeting more fashion-conscious consumers who wouldn’t be caught dead in a Walmart. To do that, Target partnered not with celebrities, like Kmart did with the Olsen twins or Walmart with Martha Stewart, but with high-end designers. Architect Michael Graves created more than 2000 household items exclusively for Target during a 13-year partnership that began in 1999. More famously, beginning in 2000, prominent couture designer Mossimo Giannulli began creating and selling clothes, shoes and accessories exclusively through Target. Chelsea Doughty, a university student from London, Ont., who now lives in the U.S., shops at Target precisely because the clothes there are “unique,” she says. They offer looks you can’t get anywhere else at prices university students can afford. That’s also what attracted Yvonne Yeung on her first Target visit to New York last year. “As a student on a university budget, it’s really difficult to find mature enough clothes—that aren’t, like, teenage girl clothes—at an affordable price,” she says.

The strongest argument against Target’s high-end reputation might be your first glimpse of an actual Target store. The location in Niagara Falls looks exactly like what is: a really big retailer selling everything. In the fridge along one wall, customers can buy 30 cans of Rolling Rock beer for just over US$20. Nearby, they can pick up bestselling books or DVDs, along with stationery (even Moleskin notebooks), toiletries, toys and groceries. Nearly half of the store is taken up by the clothes. Men’s clothes. Women’s clothes. Clothes for kids and seniors and everyone of every shape in between—just like any other discount retailer, really.

The subtle, all-important differences take some time to notice. There’s no Muzak playing, for one thing. There’s no music at all. It’s corporate policy. The stores instead are almost hushed. Even though every aisle was salted with shoppers, the one in Niagara Falls seemed almost eerily quiet. Target stores are also remarkably clutter-free. There are no toppled stacks, no blocked aisles; each one is designed extra wide to accommodate two carts side-by-side. All those little adjustments add up to a significantly different shopping experience, say fans. “You can really enjoy mousing around at Target,” says Tanya Burnett, a Canadian who spent 11 years in the U.S. before moving back to Victoria last year. And for those not dedicated to the absolute lowest price, that shopping vibe can be crucial, says Robert Kozinets, a professor of marketing at the Shulich School of Business and a retail historian. “Department store experiences aren’t known for being pleasant, but Target manages to do that.”

Modern Targets look and feel the way they do largely because of changes to the stores initiated in the mid-1980s, says Laura Rowley. “That was when they started to call their customers guests and their employees team members, after the Disney model,” she says. The company also invested in technology that keeps tabs on how quickly goods and customers are moving through checkout lines, and it installed central phones that customers can use to get help whenever and wherever they need it. “I think that focus on customer service has benefited them hugely,” Rowley says. “Once you started seeing these mega discount stores take over the retail landscape, they had that service component in place. It’s not Saks. It’s not Nordstrom. But it’s a lot better than the Kmart experience or the Walmart experience.”

The nuts and bolts of pricing, products and appearance are only half the story. Target isn’t just successful financially. It is also, on some level, a cultural force. “Almost everyone I interviewed for [my] book told me they have an inchoate longing to go there,” Rowley wrote in 2004. The reason for that success: marketing. Beginning in the 1990s, as Target began to expand with greater speed and aggression, the company also undertook an increasingly expensive and innovative advertising and branding strategy. When the company decided to move into the lucrative but heavily saturated U.S. northeast market, the head office hired a slew of top marketing firms to distinguish it from the pack. From the beginning, what those firms crafted was not your average sales pitch. Before opening its first New York–area store, the company took out full-page ads in major papers, including The New York Times, that showed only the Bullseye logo and a phone number. “If you know what this symbol means,” the ads said, call us. Bill Oberlander, who headed up the Target file for Kirshenbaum, Bond and Partners at the time told Rowley the company was initially skeptical about the campaign. But after the ads ran, so many people called they had to shut the number down. “There are a lot of displaced Minneapolis people and Midwesterners in New York City who have an incredible emotional connection to the brand,” Oberlander said.

That campaign was just the beginning. Over two decades, Target and its partners have perfected the art of the offbeat advertising and sponsorship drive. In 2005, Target became the first advertiser to sponsor an entire issue of The New Yorker (all the ads appeared as illustrations). More recently, the company put on a spectacular multimedia fashion and art show overlooking the über-hip High Line Park in Manhattan in 2010.

All those events and campaigns have been in service of a single goal. Each serves to position the company as both affordable and desirable in its customers’ minds. In other words, they make Target acceptable to shop in, for everyone from High Line hipsters and highbrow New Yorker readers, to fashion-conscious teens or seniors like Brantford’s Diane Mathurin and her friends. Those efforts have paid off. Target’s own numbers show its average customer is better off and better educated than others in the discount field. According to the company, 57% of its shoppers have completed college. An average Target shopper has a median household income of more than US$64,000, well over the U.S. average of just above US$50,000 last year.

Those kinds of customers—middle-class, brand-conscious, and not afraid of a deal—are what Target is after in Canada, too. And it’s now applying its marketing prowess to woo the Canadian consumers, just as it has in previous expansion campaigns. Since Target’s aggressive expansion began in the 1990s, the company has followed roughly the same formula at every step. While Walmart pursued widespread international growth, Target concentrated on smaller swaths, looking to always solidify any group of markets before moving on. “I know people at Target,” says Kozinets. “I used to send a lot of my MBA students there when I worked in Madison, [Wis.] Their story was always the same. They want to get it right in the U.S. and saturate that market completely before they move to another country.…Now I think they look pretty smart.”

When Target does move to a new market, like it did in the U.S. northeast in the 1990s, it does it in force, and Canada, which marks the company’s first international expansion, is no exception. The company announced in January 2011 that it had bought the rights to 220 Zellers leases for $1.8 billion. It is right now spending about $1 billion renovating more than 130 of those into new Target stores, to be opened mostly next year. (A number of other leases were sold to Walmart.) In the second quarter of 2012 alone, the company spent another US$47 million on expenses in the Canadian market, CFO John Mulligan told analysts on an earnings call in August. Add in costs related to depreciation and leasing, and in total, spending related to the Canadian expansion took a 9¢US bite out of Target’s earnings-per-share last quarter.

A lot of that money is going to hiring, training and the physical costs of renovating antiquated Zellers interiors. But a good chunk of it too is being spent to primp Target’s permanent obsession: the brand. Just as in the U.S., outside agencies are playing a big part in selling the Target message in Canada. MDC Partners, kbs+p, Veritas Communications and Toronto’s Carat, are all doing marketing and communications work for Target here, the company says. Overseeing them all is Livia Zufferli, Target Canada’s director of marketing. “This is about contextualizing Target’s brand promise: Expect More. Pay Less,” Zufferli wrote in an e-mail to Canadian Business. We want to “educate Canadians on what makes the Target brand different and unique.”

Most Canadians have already heard of the company (92%, according to Target itself; Vision Critical says it’s a mere 83%). And of those who have, more than half have shopped at Target at least once. But for Canadian shoppers, Target might not occupy the specific brain space the company believes it should. In a 2011 survey of Canadian shoppers by Satov Consultants, “lowest prices” and “value prices” were the top two answers to the question “What do you most associate with Target?” Asked to give open-ended answers, 49% of respondents mentioned that Target would bring lower prices to the market to compete with Walmart, the report says.

In other words, for a lot of Canadian consumers, Target right now means low prices, not chic designs or great shopping. And for the company, that could be a problem. Because so many Canadians are familiar with the U.S. stores, many will likely go in expecting U.S. prices. But in the August earnings call, Kathy Tesija, Target’s head of merchandising, told one analyst the company plans to be “competitive to the Canadian market…not necessarily the U.S. market,” when it comes to pricing. If the company veers too far from the U.S. numbers, however, there could be a backlash, says Dara St. Louis, Vision Critical’s senior vice-president of consumer, retail and shopping insights. For Canadian consumers right now, the key word is “thrift,” St. Louis says, and Target will have to deliver on that end to impress them.

Zufferli says Target aims to make the Canadian shopping experience “as similar to the U.S. shopping experience as possible.” (She didn’t comment on pricing.) “We’ve selected great store locations,” she says, “that will be convenient for our guests while providing a broad assortment of unique, high-quality merchandise at exceptional value.”

When the company opens its doors here full-time next year, Yvonne Yeung will likely be there. If the prices stay low and the fashions current, she says, she’ll probably be a regular customer, too. She won’t be the only one. Robert Kozinets, who spent years teaching in the U.S. before joining the Shulich school, can barely contain his glee at the thought of having a Target near his home again. “My eight years in the U.S., I was probably in a Walmart five times. I was probably in a Target at least once a week,” he says. Unless Target loses something dramatic in translation while heading north, he expects that pattern to resume starting soon. “The whole experience of shopping there,” he says, “is just different.”