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Biting Off More Than You Can Chew

Target once owned a piece of the Canadian shopper's heart that most brands only dream about. They not only evoked emotion the brand even had its own nickname 'Tarjay' that became part of the vernacular as women described their girls' getaway. A Girls Getaway, cross border-shopping trip where they plundered the aisles to scoop up unbelievable bargains that were often attached to designer labels. It was a game - a treasure hunt in its purest sense.

All of this changed when Target came to Canada. They were attracted to this opportunity for a number of reasons - the Canadian economy had weathered a recession better than most, our par or better Canadian dollar, Wal-Mart and Costco's success, strong brand recognition and the opportunity to grab the Zellers real estate. This would be like feeding a Milkbone to their mascot Bullseye.

We now know that Target bit off more than they could chew. When they opened their doors in Canada their first impression couldn't have been further from where this brand stood in the consumer's mind. Other than their signs, and some excellent advertising from KBS+ the actual stores looked like Zellers, smelled like Zellers but sadly weren't even stocked as well as Zellers. They were absolutely lost in translation. The treasure hunt had shifted from "OMG look at this Stella McCartney handbag" to having the consumer have to hunt for even the most basic of goods and then find them priced higher than other retailers.

Adding to this internal mess was the shifting retail and economic landscape. In the short time, they were in Canada 'clicks' or online shopping had exploded. Amazon was becoming the world's biggest vending machine, and the treasure hunt had moved online with consumers buying direct and without the cost of the middleman.

At the store level, we were seeing the move from 'mass to my' as consumers were becoming less interested in the brand 'name' and more interested in whether that product or service could enable their life or value set. This was the cause behind the growth of artisan and craft brands, the interest in locally sourced and environmentally friendly, and the desire for more personalized solutions - all of which were attributes not often credited to retailers like Target that depend on the scale for their profitability.

The final machete wound to their hemorrhaging brand was our Petro-driven Canadian dollar, which was trading around par on April 2013 when they opened their doors and is now trading at a five-year low with many feeling the tailspin isn't over. As our dollar loses its buying power the price of our imported goods goes up. However in our marketplace which is now defined by a ‘flight to price’, and where he who sells it cheapest wins, the retailer is absorbing most of that margin loss.

Could Target Have Done Things Differently? Absolutely

Instead of coming into Canada 'shouting loud' they could have started with a handful of flagship stores that absolutely embodied what their brand stood for the ultimate shopping experience -a social and experiential treasure hunt. In fact, they could have developed a new model for how Target can survive in the future - by using flagship stores to drive both traffic and basket to both their bricks and their clicks.

The reality is that most multinationals aren't very good at planting a seed and slowly watching it as it grows. The reason is that they have to feed the insatiable, quarter-by-quarter, appetite of their shareholders by harvesting massive profits. It's why we see so much engineering of their balance sheets - mergers, synergies, right-sizing, green mailing, shareholder buybacks, and line extensions and why they rely more on pricing versus positioning to move volume.

Target isn't the first retailer to come into a market like a Rottweiler and then fire sale their assets at a great loss, and they won’t be the last. Wal-Mart followed a similar storyline in South Korea and Germany, and Best Buy fumbled and bumbled through Europe and Turkey.

What we can expect is that the next wave of the US retail invasion will be scaled back and some might postpone or cancel their plans altogether based on the forces of change that I have outlined. This is a watch out for those in the real estate business, or the individuals who invest in Real Estate Investment Trusts who count on demand for their space, and an opportunity for existing retailers to target their offering based on the changing needs of the consumer.


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