Target closing sale just as underwhelming as its opening

Daily Brew
A man walks by shopping carts during the going-out-of-business sale at Target Canada in Toronto, February 5, 2015. Target Corp is closing its stores in Canada after the insolvent retailer came to an agreement with its landlords to start liquidation. REUTERS/Mark Blinch (CANADA - Tags: BUSINESS)

It looks like Target is going out the way it came in, amid a swath of disappointed customers.

The U.S. discount retailing giant, in one of the the biggest marketing disasters in Canadian history, is closing its 133 Canadian stores after only two years and liquidating its remaining inventory between now and May.

Many shoppers lined up before doors opened Thursday for the first day of liquidation, expecting fire-sale prices. Some found bargains but others were apparently disappointed to find the promised cuts of 30 per cent didn’t apply to many items.

“Bookends,” quipped management consultant Alex Arifuzzaman,
founding partner of Interstratics Consultants Inc., about the first and last days of Target in Canada.

Related Stories:

Target Canada workers feel left in the dark as stores close

Target Canada liquidation sales begin Thursday

Third story

When Target opened its first Canadian stores in the spring of 2013, mostly at defunct Zeller’s locations, there were expectations the prices and shopping experience would mirror those of the chain’s American outlets and their carefully cultivated image of cut-price chic.

Canadian cross-border shoppers fueled that hope, a hope communicated to most others who’d never set foot in a Target store by media-driven hype in advance of Target’s Canadian launch.

Price parity was probably never realistic, even when the dollar was at par, said David Soberman, Canadian national chair in strategic marketing at the University of Toronto’s Rotman School of Management.

“People know darn well when you go to Walmart in Buffalo (N.Y.), it’s not the same price as the Walmart just across the border in Fort Erie or Niagara Falls (Ont.),” he told Yahoo Canada News.

Target needed to match Canadian competitors’ prices

The real problem was not failing to match the prices of Target’s American stores but failing to match those of their competitors in Canada, including Walmart.

Consumers don’t compare price tags on every product in a store, said Soberman. Target’s mistake was not knowing in what categories Canadians actually did.

“So their pricing well over the first year of their operations was not competitive on the categories where the average consumer was making comparisons,” he said.

Those initial mistakes, though, should not have been fatal to Target’s ambitious expansion into Canada, Soberman and Arifuzzaman said.

The real cause of its $7-billion failure lay in Target’s lack of preparation for its big foreign expedition and a management team not agile enough to deal with problems when they became evident.

“With Target, it was hubris to think they could do that magnitude of huge store openings and be successful without any Canadian experience whatsoever,” Arifuzzaman said.

Soberman said Target’s total failure came as a complete surprise to him.

“I think anytime a retailing organization enters a new country there are going to be all sorts of teething pains, all sorts of start-up problems,” he said.

“And I’m not even sure their problems were all that extraordinary, at least in the first month or two. What was extraordinary was that they never fixed them.”

He said Target brought the wrong kinds of executives north to handle the project, which involved rolling out more than 100 stores over roughly a year.

Many analysts have criticized that strategy, saying the retailer should have have tested the market in one region first. But Soberman said success was still possible if the management team had not been made up primarily of people experienced in running an established operation rather than nurturing a start-up and all its teething problems.

“That’s a different managerial problem and the people who take that on need to have general managerial skills as opposed to target-specific system skills,” he said.

Yes, the first wave of shoppers came away disenchanted, but Soberman believes that bad first impression could have been repaired if Target had dealt with its crippling supply-chain problems that often left stores with bare shelves.

“Consumers are more intelligent and more forgiving than we think,” he said. “They’ll go in the first time and they’ll think, ‘well, they’re just starting up,’ and they’ll go in again.“

But when the problems persisted into 2014, many shoppers simply scratched Target off their list, worried they’d be wasting their time going there.

Soberman remembers going to Target last September to fill a shopping list of necessities for his daughter who was moving into university residence.

“Of the nine things, I could only find one of them,” he said. “This, to me, is you’re not disappointing people in the first month or two, you’re disappointing them more than 12 months after you’ve opened.

“The issue there is first impression but I think the thing is with Target it might have been second, third and fourth impression. They were all negative.”

Target took too long to address supply problems

The fact Target employed different suppliers in separate Canadian regions added to its distribution cost and inventory problems. The promise of an American-style selection and pricing model, embodied in Target’s slogan “Expect More, Pay Less,” proved illusory.

“Because of that they were never able to get the stores to a level that matched the consumer’s mind, which they developed with their experience of being in the United States,” said Arifuzzamen.

“Price only matters if you have the product. They were never able to get that right.”

Business schools will certainly study Target’s monumental failure, which left 17,600 employees jobless and thousands of suppliers taking a financial haircut under bankruptcy-protection arrangements.

“Often, the cases that you read about when you go to business school are about successes,” said Soberman. “My belief is just as much can be learned by looking at failures and trying to understand what were the problems.”

As for the close-out bargain hunters, Arifuzzman said discounts will probably get deeper as Target draws closer finally shutting its doors in May. It does, after all, need as much revenue as possible to set against its $3-billion balance-sheet write-down.

“I call this the disappointed vulture syndrome,” said Soberman of those who descend to pick the flesh of dying businesses. “There are always going to be vultures that don’t get what they want and they’re the ones that squawk the most.”