Advanced Strategy Case: Target

Instruction

    Target Corporation (Target) was founded in the early 20th century. The company which was headquartered in Minneapolis, Minnesota was called Dayton Dry Goods Company when it created. The company was a department store in the beginning. In the 1960s, the leadership put forward a new idea to be discount store. In order to strengthen the relationship with its customers, the company transformed from a family-owned department store retailer to a mass market retailer. Then the first Target retail store opened in 1962 in Minneapolis (Target, 2018). Next, Target had a series of expansion plans in American market. According to Target (2018), in 1966, Target opened a store in Denver area, which was the first store outside of Minnesota. Then the company opened its first store in the Pacific Northwest in 1988 and in the Southeast in 1989. Not only that, Target opened eleven stores in the Chicago area in one day in 1993. In 2001, Target already had 1,000 stores. The company is the second largest retailer in the United States, second only to Walmart.

    Walmart has always been a competitor since Target’s opening. While Target's positioning is to sell high quality products, Walmart's positioning provides low-priced products. However, when Walmart began to expand overseas markets in the 1990s, Target decided to enter the Canadian market in 2011. In order to expand its global business, Target's leadership decided that entering the Canadian market was the best choice. In 2011, Target purchased 189 Zellers Inc. sites in Canada and planned to renovate two thirds of them as future Target stores (Target, 2018). However, because of the wrong strategy, the plan later failed.

The CEO's Strategic Decision: Entry into Canada Market

    According to Dahlhoff (2015), former Target CEO Gregg Steinhafel mentioned that "two years of excellent professional dedication and hard work" was the strategy for Target to enter the international market. He thought that entering Canada market was an opportunity, because Canada is close to the United States and uses the same language. Since Target is a large United States retailer, he believed that expanding the Canadian market was attractive and feasible. This was also a preparation for the future entry into the global market. Target purchased Zellers's leases of stores. Even though stores needed large-scale renovation work, the company still opened 124 stores within a year in 2013 (Target, 2018). However, they seemed to enter the market in a hurry. The company did not do much research in the Canadian market. Target believed that Canadians' lifestyles are similar to those of Americans but it did not consider other factors. The company opened new stores too fast leaded to many consequences. Target did not immediately understand the customer's needs and make changes. In addition, the company also ignored its competitors. Peterson (2015) explained that Target had commitment to investors that its Canadian business would make profits by the end of 2013. When Target realized that the international expansion was not going well, the company hired a new CEO, Brian Cornell, and tried to change the issues.  But the effort ultimately failed.

Failed Expansion Strategy

    Wahba (2015) explained that the poor expansion plan caused Target to pay a high price and learn a lesson. After losing more than $2 billion, Target’s CEO, Brian Cornell, finally decided to quit the Canadian market to stop loss. Wahba also mentioned that Cornell said “Our Target Canada business had reached the point where, without additional funding, it could not continue to meet its liabilities. Simply put, we were losing money every day”. The reasons why Target failed in Canadian market are as follows:

• The location of the stores were not ideal

Target bought Zellers' stores lease from HBC. This strategy gave Target stores immediately without needing to build new stores (Wahba, 2015). However, these stores were too small to not meet the Target formats. Target needed to spend more money than expected to expand these stores. Some of these stores were in bad locations and were located in sparsely populated areas. These conditions made Target’s plain go poorly from the beginning.

• Pricing failed

Kline (2016) mentioned that Canadian shoppers are used to viewing low prices as brand recognition. Because Canada is close to the United States, Canadians are usually familiar with Target. They know Target is a large discount retailer. Canadian looked forward to the coming of new retailers and new products. Unfortunately, the results disappointed them. Target's prices in Canada were higher than in the United States.

• Empty and Cluttered Shelves

Target entered the Canadian market and opened its stores in a very short time. These conditions prevented vendors from supplying goods immediately, and the result was insufficient inventory. Shoppers were disappointed with stock outs. Kline (2016) explained that supply chain failures led to many shelves being bare, and shoppers complained about lack of choice. Many Canadian shoppers even were not willing to shop there. Target could not change this situation immediately.

• Facing competition

Before Target entered the Canadian market, Walmart had been in the market for twenty years (Peterson, 2015). In addition, Costco has also been running in the market for more than 30 years (Kline, 2016). They know customer needs so they can do strategic decisions flexibly. Target not only entered the Canadian market late, but also faced to the two large retailers competition.

    All of these led to the failure of Target. Target's strategy error caused Canadians were very disappointed with Target. The company also did not do in-depth research in the Canadian market, and understanding of the market demand. Dahlhoff (2015) explained that Target CEO Brian Cornell believed that the Canadian market would not be profitable until at least 2021. Therefore, in less than two years, Target exited the Canadian market. Target had a large-scale international expansion, but it brought catastrophic failure.

Recommendations

    Target should have understood Canadian real estate before it did international expansion. Buying Zellers stores lease allowed target quickly to enter the Canadian market. However, bad locations could not attract Canadians to go shopping. The company should take time to investigate where it can open stores.

    Logistics is very important to the retail industry. In addition, it needs to integrate supply chain management. Target needs to combine all the processes in its supply chain. The company needs to use a system to organize and manage processes to lower its cost. Supply chain is the obvious weakness of Target. According to Kline (2016), Target's technology in the commodity tracking system is clearly insufficient. Out of stock and empty shelves highlight Target's supply chain management failures. Therefore, Target needs to strengthen its supply chain capabilities and strengthen its logistics management to ensure smooth delivery and keeping of the lowest stock possible.

    Target also needs to do more research to understand what the spending behaviors of Canadian are. Louis (2015) noted that Target did not do a good job of customer intelligence, especially in the pricing differences between the United States and Canadian stores. Fiorletta (2015) quoted by Alden that Canadians are sensitive to price gaps especially when they know the price of the United States. However, the goods prices of Target in Canadian market are higher than the United States; this is what Canadians cannot accept. Target needs to respect consumers and achieve unified pricing within every store.

Conclusion

    The global market has gotten closer and closer, and every company may need to enter the global market at some point. However, the overseas market and the domestic market are not all the same, so a company must take measures that suit the local situations. A company also needs to consider the local environment, politics, customs, and culture to reduce risks. In the example of target, the company’s international expansion strategy was clearly wrong. The company was too confident and did not consider well. The locations of the stores in Canada were not ideal.  Peterson (2015) mentioned that the locations of Zellers stores which Target bought were smaller than the typical United States format of Target. Wahba (2015) also pointed that Target rushed into the market and large-scale stores opening led to chaotic inventory planning. In addition, the price was higher than the United States and having competition were also reasons that Target failed in the market. Successful global expansion needs to adapt to the local market, understanding local needs. Target needs to adjust its steps, learn lessons. The company needs to adjust its strategy before the error is expanded. If Target can gain experience after this failure, they could gain an advantage in the international expansion market next time.

References

Dahlhoff, D. (2015). Why Target’s Canadian Expansion Failed. Harvard Business Review. Retrieved from: https://hbr.org/2015/01/why-targets-canadian-expansion-failed

Fiorletta, A. (2015). Expanding Into Canada: Challenges And Opportunities. retailTouchPoints Review. Retrieved from: https://www.retailtouchpoints.com/features/trend-watch/expanding-into-canada-challenges-and-opportunities

Kline, K. (2016). Why Target failed in Canada, and what other companies can learn from it. INC. Retrieved from: https://www.inc.com/kenny-kline/what-you-can-learn-from-costco-and-targets-international-experiments.html

Louis, S, D. (2016). What You Can Learn From Costco and Target's International Experiments. Vision Critical. Retrieved from: https://www.visioncritical.com/target-canada/

Peterson, H. (2015). 5 Reasons Target Failed In Canada. Business Insider. Retrieved from: http://www.businessinsider.com/why-target-canada-failed-2015-1

Target (2018). Target through the years. Target. Retrieved from: https://corporate.target.com/about/history/Target-through-the-years

Wahba, P. (2015). Why Target failed in Canada. Business Insider. Retrieved from: http://fortune.com/2015/01/15/target-canada-fail/