Companies & Industries

How to fix Target Canada’s problems in six easy steps

Target missed the bullseye in its first year in Canada. We asked 10 retail experts how they’d get the retailer back on track

BREAKING NEWS: Target is closing all its Canadian locations. Updates available here.

Target dog looking sheepish

Give him a break. He’s sorry. (Nikki Ormerod)

It was hardly what you’d call a viral hit.

The apology note Target Canada posted to YouTube in June, featuring interviews with employees from both head office and the retail floor, has yet to draw millions of views. But it was remarkable in that it offers the first sign the Minnesota-based retail giant is finally getting the hang of what it means to be Canadian.

Not that anyone exactly says, “I’m sorry.” The nearly two-and-a-half-minute clip, which the company says was created for internal purposes but was later tweeted by Mark Schindele, the president of Target’s Canadian operations, is now as much marketing tool as it is mea culpa following a less-than-stellar entrance into the Canadian market in spring 2013. As such, it’s laced with comforting words meant to reassure Canadian shoppers that Target isn’t ready to give up on them yet, along with open admissions it could have done better.

MORE: Target Canada takes to YouTube to apologize for pretty much everything »

“Maybe we didn’t put our best foot forward when we entered into Canada,” says Damien Liddle, senior corporate counsel with Target Canada, over the video’s plinky piano refrain. “We had some disappointments. Certainly we think we’ve disappointed our guests.”

The company has certainly disappointed shareholders. It’s been a little over a year since Target marched over the border with a US$4-billion plan to open more than 130 stores in communities from Victoria, B.C., to St. John’s, Nfld. In that time the company’s fortunes have teetered between chaos and near-disaster. Target’s Canadian operations have lost close to $1 billion to date. “Let’s just say they made a home-run swing in Canada and they missed the pitch,” says Alex Arifuzzaman, a retail analyst at InterStratics Consultants in Toronto. He calculates that Target’s average store sales plummeted from US$28 million in its opening quarter to a dismal US$18.6 million in the first quarter of 2014. By comparison, average sales on Target’s home turf surged from an estimated US$38 million to US$39.6 million over the same period.

Finances aside, Target’s bigger challenges are stubbornly centred on unhappy customers whose loyalty has been stretched thin by a series of supply-chain snafus and prices that many perceived to be out-of-whack with both big-box competitors and the company’s own reputation as a quality discounter. In an anonymous post to Gawker, one former store manager complained bitterly about chronically under-stocked shelves, underwhelming service levels and uninspired floor displays that left Canadians feeling like we’ve been saddled with the poor cousin to an American star. All the while, the U.S. management culture went down like a lead balloon with staff who were forced to deal with front-line complaints. “The overly sincere ‘we’re here to HELP you’ approach was a constant drain on the senses,” the former employee wrote. “It was akin to swimming with smiling sharks.”

READ: A timeline of Target’s rocky first year in Canada »

UPDATE: In August, a Target exec admitted to reporters that “We bit off way too much, too early.”

 Nobody is more aware of its troubles than Target Corp. itself. In May, CEO Gregg Steinhafel resigned, taking the fall for a massive security breach involving 40 million customer credit cards, as well as being the architect of the money-losing Canadian expansion. Two weeks later, the company sacked Tony Fisher as Canadian president, and tapped Schindele, then senior vice-president of merchandising, to lead the campaign to overhaul the troubled operations. Schindele has vowed to do a better job understanding the subtleties of the market and its shoppers, but acknowledges he can’t do it alone. The company has created a special position—a non-executive chair—that will be occupied by a Canadian executive.

“Our priority is on driving significant operational improvements to improve the guest experience and developing innovative marketing campaigns that reinforce Target’s unique assortment and unbeatable pricing,” says Lisa Gibson, a spokeswoman for Target Canada.

It’s a big job—some might even say daunting—and, frankly, we thought they could use some help. We called up some of the brightest minds in retail and put the challenge to them. Here’s their no-fail plan to deliver a direct hit for Target in Canada in six simple steps.

STEP ONE: Target actual Canadians

Head to a Walmart in Mississauga, Ont., and it’s no accident you’ll find an excellent halal meat section selling specialty items you won’t find in rural Saskatchewan. At the Home Depot in Richmond, B.C., where do-it-yourself workshops are regularly offered in Cantonese, you’ll find helpful tips on how to update the bathroom or kitchen in time for Chinese New Year.

This is big-box retailing in the 21st century, says Paco Underhill, CEO of New York–based consultancy firm Envirosell and author of Why We Buy: The Science of Shopping and Call of the Mall. The best competitors in the Canadian retail landscape use census and market-research data to drive sales and shape inventory investments specifically tailored for Canada’s diverse communities.“Some Canadian cities have as diverse a middle-class population as any city on the planet, and part of what you have to do is play to that diversity and know that having Thai peanut sauce makes sense in one city but it doesn’t make sense somewhere else,” says Underhill.

Despite Target’s U.S. reputation for leveraging big data, Underhill thinks Target Canada largely failed to use demographics of any kind to its advantage. Ongoing problems with its supply-chain meant the retailer struggled to keep even basic products like baby food and laundry detergent on the shelves, while, in some cases, it may have gone too far to “Canadianize” the merchandise it does have in stock. (Looking for Map-o-Spread? You’ll find the maple syrup condiment in the grocery aisle, next to the peanut butter.)

READ: Don’t get comfortable, Target; Many U.S. brands can’t hack it here »

If Target failed to cater to regional and cultural differences, it’s also done a poor job of distinguishing itself in the marketplace, says Mario Pilozzi, former CEO of Walmart Canada and the man who presided over the chain’s entry into Canada in the mid-1990s. He believes Target failed to recognize the subtleties of Canada’s economic classes and how they can shape a retailer’s place in the competitive market.

In the U.S., Walmart’s “stack ’em high and watch ’em fly” strategy is aimed at middle to lower-income consumers who are watching every penny, while Target has differentiated itself by investing more in the slick look and feel of its stores. As such, Target tends to attract U.S. consumers whose average salaries (about $64,000, according to a former Target executive) are higher than those who shop at Walmart. That formula works in the huge U.S. market, but doesn’t translate as well to Canada, which has a tenth of the population and less stratification in its economic classes.

“Most Canadians shop at Walmart, Canadian Tire, Mark’s, H&M, other banners and online,” says Pilozzi. “It is more of a blend of economic levels, so just trying to be one level above Walmart Canada here just won’t work.” Pilozzi believes Target executives should ditch sales strategies grafted from its U.S. operations and come up with a brand-new, made-in-Canada plan that clearly defines the Target consumer and identifies what sets the brand apart from the competition.

STEP TWO: Be Chic, not cheap

Part of Target’s appeal in the U.S. has long been the exclusive product ranges it commissions from name-brand designers and celebrities. Collaborations with the likes of Jason Wu, Rachael Ray and champion-snowboarder-turned-designer Shaun White are all part of a wildly successful ploy to lure shoppers hungry for the brand’s “cheap chic” offerings into stores and online.

While Target brought many of its U.S.-owned brands and designer partnerships to Canada (including a recently announced Joseph Altuzarra line that will hit stores mid-September), it has also teamed with Canadians like Jan Halvarson, co-founder of a popular Vancouver-based design blog called Poppytalk, and Roots, for an exclusive line of Beaver Canoe clothing and housewares. Yet, somehow, the pairings have largely gone under the radar.

For Kersi Antia, marketing professor at Ivey Business School at the University of Western Ontario, that’s got to change—the sooner, the better. Antia wants to see the retailer steal from its American playbook and take on more influential design and marketing partners, particularly those who can add a Canadian twist to advance the brand’s public image. More importantly, they shouldn’t be shy about promoting the celebrity partnerships. “It speaks to a strength they have already demonstrated time and time again, and gives their loyal customers a reason to come back,” Antia says.

It won’t be a quick a fix, says Maureen Atkinson, a retail advisor and senior partner with J.C. Williams Group. She says Target will have to reverse an internal trend that’s seen the financial support available for acquiring and marketing unique merchandising partnerships wane notably in the post-2008 market. At the same time, H&M and other retailers have ramped up efforts to pair their brands with some of the fashion and design-world’s most exciting names. The end result has left Target’s in-store displays feeling deflated—a situation that has only been magnified in Canada.

Atkinson recalls a spread that appeared in Chatelaine magazine that showcased the fashion brands Target was bringing to Canada. In reality, the highlighted outfits were “almost impossible to find” in the stores and, when they could be located, looked nothing like they did in the magazine’s glossy pages. “What you found was this rack that jumbled together five different looks,” she says.

STEP THREE: stay out of the food fights

The idea that a department store should sell frozen pizzas alongside its jeans—and a grocer should stock T-shirts alongside its deli meats—has been around so long it’s become standard practice. But competing over humdrum necessities that have the lowest profit margins, such as toiletries and laundry detergent, seems like a mug’s game to Mark Foote, the former CEO of Zellers, who was tasked with winding down the outgoing Canadian retailer when Target assumed its leases in 2012. He thinks the retailer should instead up its game on product categories that better drive Target’s image, even suggesting they raise prices where possible while striving to be competitive on everything else.

Why? Discount customers already know the price on toilet paper because they buy it regularly and can cherry-pick the goods on promotion. That strategy, he says, does little to create shopper loyalty. That’s not to say Target shouldn’t sell toilet paper. But Foote believes Target can help offset lower prices on high-frequency purchases by boosting prices on those exclusive designer dresses, on-trend bed sheets and specialty candies that set it apart from market competitors.

The only exception he sees is the grocery aisle. Foote warns Target not to get into a food fight with established Canadian grocers like Loblaws or Walmart. Both have been successful using food to lure people into their stores with the hopes of selling them a T-shirt or two on their way out. Foote says that tactic won’t help Target stand out from the crowd. Rather, “it’s a race to the bottom.”

STEP FOUR: Win Back-to-School

The back-to-school push is the second-biggest consumer spending event in retail next to the December holidays. Sales of school- and college-related items—all those backpacks and binders, tablets and smartphones— brought in more than US$80 billion in the U.S. last year. Throw in new pair of jeans, socks and underwear, and the average American family annually spends something in the order of $700 each. Canadian budgets are a bit more modest, but are catching up quickly. A recent BMO study found that in 2013, Canadian moms and dads were willing to fork out more than $425 to get their kid ready for the classroom, up 18% over the previous year’s figure.

It’s a huge sales opportunity that Target can’t afford to mess up, says Jeff Doucette, general manager of Field Agent Canada, a Calgary-based retail consultancy firm that works with Target Canada suppliers. “Don’t over-think it,” he says, “but get this right, because if Target can win with those moms at back-to-school, then they stand a chance to win with those moms at Christmas.”

Perhaps the most important part of that strategy relies on Target resolving its distribution woes and stocking shelves this August with everything a parent or kid could want on a back-to-school list, as well as those special items they can’t find at other stores (Shaun White’s collection of skate shoes and apparel, for instance). To do that, says one former American Target executive, who asked that he remain anonymous, the company needs to provide Canadian employees with the same equipment the U.S. chain uses to keep track of what’s on its sales floor and in its backrooms.

South of the border, store staff are equipped with handheld devices that tell them immediately what items are in stock and where to find them. “I can scan the product and tell you, ‘No, I have no more in the backroom’ or ‘Yes, I have two and I know exactly where they are,’” says the former exec. Canadian floor staff have the PDAs, but lack detailed, up-to-date info. Last May another anonymous former manager—this one Canadian—told Gawker the stock situation in Canada was so chaotic that stores had little way of knowing even what would arrive each day by truck. “You could hope/pray and expect one thing, and open a full 54-foot trailer full of something completely different,” the manager wrote.

Target has three distribution centres in Canada, which are managed by an outside firm. (In the U.S., Target oversees its own warehouse operations.) Employees have said mismatched data systems between the two companies have led to delays and confusion when it comes to sorting products. According to Target, the company has since enlisted the help of third-party consultants to complete an assessment of the current systems and processes, with the aim of smoothing out its supply chain.

With supply issues sorted, Doucette thinks Target stands a fighting chance of winning the back-to-school battle—and may even have an advantage over its competition. “Kids don’t mind being spotted at Target with Mom,” says Doucette.

STEP FIVE: Think smaller

One of the messages Target Canada hoped to convey with its YouTube apology was its resolve to get Canada right. “The research that we’re doing to better understand our guests, we wouldn’t be doing it if we weren’t committed,” said Beverly Altberg, director of merchandising operations.

But you’d be hard-pressed to find a retail analyst in North America who doesn’t believe the company bit off more than it could chew when it spent US$4 billion to open 127 stores and recruit 20,000 new employees in a little more than a year. “In hindsight, they should have just opened in one market at a time and been very patient,” says the anonymous former American Target executive.

Arifuzzaman, the retail analyst, thinks now may be the time for Target to consider cutting loose its money-losing locations, particularly those outside major urban centres. “They are in some really, really small markets, such as Fergus, Ont., and Smiths Falls, Ont., and markets where there are only 10,000 people within a 15-minute drive,” he says.

Target’s not the only chain that’s entered a new market only to backpedal a bit. In 2006, Walmart closed up shops in South Korea and Germany after having failed to connect with consumers in those countries, while Best Buy was forced to pull out of the United Kingdom following a mismanaged entry in 2010. But Mark Foote doesn’t think Target needs to beat quite as hasty a retreat. He suggests taking a closer look at staffing levels.

“Labour costs are a big factor in day-to-day profits,” he says. When Target acquired the leases of 124 old Zellers locations, it inherited a higher-cost store structure that it can do little about: outdated floor plans that run over multiple levels are no match for sleek, single-entrance big-box stores designed for ultra-efficiency. The limited number of entries, exits and check-out locations at stores like Walmart, Home Depot and Canadian Tire not only make for better in-store logistics, but also require fewer employees on the floor. It might mean pink slips for some employees, but Foote is confident a leaner Target can survive. “You can do it without sacrificing the brand,” he says.

STEP SIX: Stop apologizing

“Why was Target Canada such a disaster?”

That’s not a question, but one of the less-than-flattering headlines the company has inspired over the past year as pundits north and south of the border speculate on when and how hard Target Canada will fall on its face. But there are those who believe that kind of talk is premature.

Robert Kozinets, director of MBA specialization in global retail management at York University’s Schulich School of Business, says none of the challenges experienced by Target so far have been out of line with what should reasonably be expected of a brand making its first foray into international territory—certainly not a powerhouse such as Target.

“There are mistakes that were made, but to call mistakes a failure with an organization like this is a huge misappraisal of their innate ability to adapt, recognize issues and solve problems,” says Kozinets.

Twenty years ago, when Walmart entered the Canadian market by purchasing the leases of 122 Woolco stores, it too arrived on bumpy roads. There was a wave of public resistance from those who feared American-style retailing on this scale would pulverize smaller players, and politicians in Vancouver also lobbied to keep the retailer outside of city borders, citing environmental concerns. Today, Walmart operates more than 370 stores in Canada, including two in Vancouver.

By comparison, Target’s problems don’t seem nearly as troublesome. Target was already a beloved brand for thousands of Canadian shoppers who regularly crossed the border into New York or Washington State to sample the store’s retail offerings. When the company announced it was coming to Canada, many Canadians were thrilled. “When your brand starts to get a nickname like ‘Tar-zhay,’ it’s like a person,” says Brad Breininger, brand strategist with Toronto-based Zync Agency. “It means people like you.”

Breininger believes Target can weather the storm if it stops talking about what went wrong and starts communicating what it’s doing to turn things around. “They actually have to put their money where their mouth is and change the experience in some way,” he says.

Paula Courtney, CEO of the market research firm Verde Group, takes that advice one step further. She believes Target management should stop talking altogether—and focus on solving its core problems.

Courtney says that while Target’s early mistakes have cost it precious consumer trust, it stands to lose even more if it breaks promises or takes too long to ensure they are fulfilled to customer satisfaction. Once those operational issues are ironed out and stability has been restored across all stores, “then you can start to say, ‘We’ve listened. We’ve heard. We have fixed the problems and we are ready for you,’” she says.

Target does appear to be ramping up efforts to improve its brand image, with spritely on-air advertising spots and a new, multi-page flyer that highlights “red hot buys”—deals on fashion, groceries and beauty products. Target Canada also recently launched an Instagram account, to complement its Twitter and Facebook channels, in an effort to grab the attention of younger consumers.

Will it be enough to restore the glow to Target’s bullseye? Mandi Chung, Target Canada’s executive team leader of human resources, had the last word in Target’s apology video. We’ll give it to her again:

“Whatever difficulty comes our way, we will be able to overcome it and become an even better company and smarter in the future,” she said.

Hey Target, meet our experts:

Kersi AntiaKersi Antia
Marketing Professor, Ivey School of Business at Western University
Alex ArifuzzamanAlex Arifuzzaman
Partner, Interstratics Consultants Inc.
Maureen AtkinsonMaureen Atkinson
Senior Advisor, J.C. Williams Group
Brad BreiningerBrad Breininger
Principal, Zync Agency
Paula CourtneyPaula Courtney
President and CEO, Verde Group
Jeff DoucetteJeff Doucette
General Manager, Field Agent Canada
Mark FooteMark Foote
Former CEO, Zellers Canada; now CEO, Wajax Corp.
Robert KozinetsRobert Kozinets
Marketing Professor, Schulich School of Business at York University
Mario PilozziMario Pilozzi
Former CEO, Walmart Canada