April 12 marked the 1-year anniversary of the closing of Target stores in Canada. In the Jewish tradition, we mark the anniversary of a passing by observing yahrzteit, or remembering.
And in a pair of essays, I reflect on Target Canada. In Part One I reflected my long-term relationship with Target.
In Part Two, I take a step back. Although Target might have only lasted about 2 years in Canada (some stores as few as 6 months), because of the size and scale of the operation, it will continue to affect Canadian retail for the foreseeable future. In this essay, I identify some of the long-term impacts and lessons about the Target fiasco in the Far North.
- Target actually had some better brands of merchandise in Canada than in the US. For example, in its housewares department, Target Canada carried the Joseph Joseph line of high fashion kitchen accessories. Target USA does not carry this line; JC Penney had it the last time I checked (a few months ago). Joseph Joseph is also carried by the Bay in Canada and Macys in the USA—“next step up” stores.
But I’m not sure anyone noticed and I don’t remember Target making much of an effort to promote this.
And Target should have.
Target carries the Kitchen Aid line in its USA stores but Canadian Tire seems to have an exclusive on that line in Canada, meaning that Target couldn’t carry all of the merchandise in Canada that it carries in the USA because of existing agreements between the same suppliers and other stores. (I conjecture this because I don’t see it elsewhere and Target didn’t carry it.)
Even before it opened, Target said it would have some unique products in Canada that it didn’t sell in the US. In the case of housewares, Target “traded up” for some better merchandise but never really announced it. They should have promoted Target Canada exclusives in store and in its advertising and defined exclusive as either not available in Target USA or only available at Target.
- Target got help screwing up some of its Canadian merchandising. Although Target admittedly has primary blame for its failure in Canada, it actually had help screwing up a number of its departments. As I noted in the previous post (and others have noted, too), Target had a lousy and overpriced merchandise mix—especially in groceries and health and beauty- pharmacy. But in many parts of the country, Target relied on a major local supplier to help with those. Groceries were supplied by Sobey’s and, at least in Quebec, pharmacy was supplied by Brunet (part of the Metro group).
I only know about these from what I read in the paper and saw in the stores, but as I understand the situation, they were supposed to provide a Canadian imprint on these departments. The problem is, they put a Sobey’s or Brunet imprint on these departments, someone forgot that these are Target departments.
It appears that no comparison was made with the merchandise mix at Target US and Target Canada, something that Target should have overseen and required of its suppliers. Furthermore, it appears that no effort was made to coordinate store brands between the two countries; it appears that Sobey’s and Brunet store brand products was merely packaged in Target store brand packaging. So what appeared to be similar or identical products to Target USA on the outside seemed like substantially different products on the inside.
- Target might not have lasted, but mall upgrades made to accommodate it have. Before Target announced its entry into Canada, many Canadian malls—especially in the Class B and Class C ranges—had delayed necessary renovations. Malls like Galeries d’Anjou in Montreal and Bayshore Centre in Ottawa appeared stuck in the 1990s, both in terms of appearance and lackluster store mix.
Expecting greater foot traffic from Target, however, these malls finally entered the second decade of the new millennium. They remodeled their interiors, updating color schemes, furnishings, and decorative elements. They reworked their store mixes. The updated malls appeared more fashion-forward and reflective of the times.
Want more details? See my recent reviews of Galeries d’Anjou, Bayshore Centre, and Place Vertu—B and C malls that remodeled around the time that Target arrived.
- Target might not have lasted but upgrades to its competitors leave them in stronger positions long-term. Target thoughtfully gave Canadian retailers two years’ warning of its arrival and the retailers used that time to significantly up their game. And most major retailers did, with Canadian consumers benefitting long-term, even if Target didn’t last. Consider these long-lasting improvements to some iconic Canadian retailers:
- Canadian Tire. Strengthened its coverage of the basics and customer service, and re-emphasized its place in Canadian communities to maintain its place as the go-to-store for anything basic in the household, the place that Target tried—and ultimately failed—to supplant. Instead, Canadian Tire seems to have strengthened its role as the go-to store for anything basic in the household.
- Hudson’s Bay: Transitioned from a ho-hum four-century-old operation to one that looks relevant and new. (Of course, the $1.2 billion it received from selling its Zellers leases to Target helped.) It emphasized higher end and quality fashion and home furnishings to distinguish it from the cheap chic expected from Target.
- Loblaws: Strengthened the design appeal of its housewares (looking chicer than Target’s while offering similarly low prices) and launched the Joe Fresh clothing line, which challenges Target’s on price and style.
In a bit of tit-for-tat, Loblaws tried to strike back by launching Joe Fresh in the USA. As Target failed in Canada, so Joe Fresh seems to have quickly gone stale in the US: its relationship with JC Penney cut short and its Fifth Avenue flagship in New York quickly closed.
- Metro: The central and eastern Canada grocer continued to focus on groceries, but upscaled the experience. It brought all of its stores under the Metro brand (previously limited to Quebec) and reworked its logo Metro also expanded its prepared foods, strengthened its store brand, and launched an American-style grocery store loyalty program (Metro et moi / Metro and me).
- Sears Canada: Although on a self-inflicted death spiral (mostly because its owner, Eddie Lampert, seems to only care about its real estate and can’t seem to hire a merchant willing to lead the store longer than a year), Sears made some nominal moves to counter Target, including a couple of store remodels in malls where Target would also locate (like Galeries d’Anjou in Montreal).
But Sears most interesting moves came after the store closed, when it offered jobs to Target employees. Admittedly, that was a head scratcher, as Sears has been laying off employees with increasing regularity. But in the end, Sears is still here and Target isn’t.
- Walmart: Already having had upped its design game for US stores to compete against Target’s admittedly diminished housewares (which suffering from the departure of major designers like Michael Graves), Walmart decided to primarily compete with Target in the grocery department, expanding many of its existing Walmart (which have a small grocery section) to Walmart Supercentres (which have full-line grocery stores in addition to all of the other departments).
- Target might not have lasted, but some of its empty storefronts will serve as long-term reminders of the failure. One of the long-term problems of Target leaving is that it also leaves lots of empty space: about 2 to 3% of all retail space in Canada. About a third of its leases were picked up within 9 months—some by Walmart, some by Lowe’s, some by a gym—but the majority are vacant and are likely to remain that way.
That’s because the demand for 120,000 square foot stores is limited. A few malls are rebuilding the space so they can lease smaller stores.
But in a climate whose medium-term outlook for the next few years is flat, absorbing all of that still-vacant space remains a challenge.
So shadows of Target signs remain on walls in and out of malls that look like Target bullesyes but aren’t any more.
And nothing looks more creepy than a big vacant store.
- Target needs to revisit its playbook for entering a market, especially if it tries again to enter international markets with bricks-and-mortar stores. Target likes to enter new markets by making a splash and launch a number of stores all at once.
According to the in-depth report on the last days of Target Canada in Canadian Business, Target felt compelled to open quickly in Canada because they had acquired so many leases and could not afford to pay rent on so much vacant real estate for an extended period of time.
This certainly sounds plausible.
But it overlooks Target’s history: how Target entered new markets in the US. It reads just like the playbook for Target Canada. When possible, Target would buy the real estate of a distressed competitor, such as Richway in Atlanta and Ames in Boston. If necessary (as it was in Atlanta), Target waited until after the store liquidated its merchandise and formally laid off its staff, before bringing in the construction crews and hiring teams to open a new Target.
That’s what happened with Target’s purchase of Zellers leases.
The massive construction-then-massive-launch approach might work in the US, where communities are increasingly similar in their day-to-day needs, and, except for some local variations, the company would still retain its basic supplier relationships, operating logistics, and HR practices (with minor adjustments for local laws and customs).
But even though the population of Canada is about the same size of California (or about 5 Target market areas), it’s a different country and Target could have considered an entirely different playbook.
Rather than buying the leases, emptying the stores, laying off all of the talent, and investing in reconstruction, Target could have purchased Zellers’ outright, taken advantage of its expertise, supplier relationships, ongoing operations, and, significantly, functioning inventory control system, then made adjustments as it learned the market and slowly but surely convert the Zellers stores to the Target nameplate, learning from the successful lessons of Walmart’s successful entry into Canada at Woolco stores.
- Although Targets policies are written to value human resources, its choices in Canada suggest that a bridge still exists between what’s written on paper and what’s practiced in the business. One reason that Target has chosen to wait to occupy a former retailers’ space rather than merely take over its business as described above is that Target is a non-union company and most of the stores it has replaced had unionized staffs. Without going into the pro- or anti-union issue, which is beyond the scope of this discussion, practical considerations suggest that addressing broader business needs might necessitate rethinking this employment practice.
In this particular situation, Zellers was a functioning business and Target would have rebuild all of that from scratch.
But Target also ignored the practical limitations of the real world when choosing to do so, because the company made three other choices that rely on effectively managing human capital dimensions and, in both cases, made disastrous choices.
The first two choices are related: planning to open 133 stores across Canada within three years and launching a two significant pieces of technology–an inventory control system and a point-of-sale system–both of which touch on every part of the organization. Both timetables were unrealistic, but especially the inventory control system, on which the entire operation of Target depended.
Anyone with passing knowledge of enterprise systems knows that such a comprehensive system cannot be launched in two years, no matter how smart the people working on the team or how experienced the systems integrator (Accenture in this case.) Canadian Business has an amazing post-mortem of the situation. Both systems probably could have been successful if management had been realistic about the schedules for systems planning, installation, customization, and implementation. And they could have been realistic, because a wide body of experience with enterprise systems in general, and inventory and point of sales systems, in particular is available. But management chose to ignore that almost all of that history suggests that a successful implementation requires three to five years.In other words, they ignored one of the most basic principles of human performance: the best predictor of future performance is past performance.
The third choice Target made was to shortchange training. I had been aware of that problem; I had spoken informally with certified trainers whom Target lured from other Canadian retailers. But the trainers I spoke to were hired on contract and told me that, as soon as initial training was complete, Target dismissed them. Ironically, these trainers provided training on their systems.
That might not have been as serious of a problem in Target USA, the company not only has functioning inventory control and point-of-sale systems, but also has experienced workers who can provide the development needed to bridge the gap between classroom training and the job.
But all of Target Canada’s employees were new and, as happens in situations like these, relied on incidental, on-the-job learning rather than close supervision and mentorship, some of which was not feasible because of the general inexperience of the Target Canada staff, but some of that supervision and mentorship not feasible because the company chose to provide less rather than more training, when learners could be observed performing successfully before they return to the workplace.
And some of the informal lessons learned turned out to be how to game the system. In doing so, staff exacerbated an already public and humiliating problem with inventory. As reported in Canadian Business:
Business analysts (who were young and fresh out of school, remember) were judged based on the percentage of their products that were in stock at any given time, and a low percentage would result in a phone call from a vice-president demanding an explanation. But by flipping the auto-replenishment switch off, the system wouldn’t report an item as out of stock, so the analyst’s numbers would look good on paper. “They figured out how to game the system,” says a former employee. “They didn’t want to get in trouble and they didn’t really understand the implications.”
Although presented in the magazine as a technology issue, the situation sounds like a classic human resources management and development problem.
By all accounts, despite these problems, Target had a committed and engaged workforce according to the Canadian Business report. But a committed and engaged workforce can only go so far when the system sets that workforce up for failure.
- Bankruptcy is ugly. It humbles even the great. In bankruptcy, Target violated its own century-old values as a corporation and seriously tarnished its image in the Canadian community. It wrote checks to community organizations just before the bankruptcy that bounced when the community organizations tried to cash the checks within days of the bankruptcy. It laid off nearly 18,000 of its own workers, and cost thousands more their jobs. It ruined suppliers. It raised questions about its own ethics by the choice of bankruptcy statute to use in its filing. The manner in which it tried to get out of its leases further tarnished its reputation and the company found itself in protracted court proceedings over its bankruptcy plan.
In other words, Target lost more than billions of dollars in this failure; it lost a part of its soul, even if most of that news was only covered in Canada and received far less coverage in the USA.
- Target USA does seem to be recovering. Although the stated reason for departing Canada is that the company saw no path to profitability before 2021, if even then, part of the reason has to be that its US stores needed primary attention. Although everyone talks about how lousy the Canadian stores were, the USA stores weren’t so wonderful. Sales were flat. The chic had departed and, even in harsher times, cheap alone wasn’t attracting customers. And with a data breach of massive proportions, the company lost the trust of its customers, too.
Around the time of the Canadian departure, Target executives announced efforts to revitalize the product line and shopping experience. The proof would have to show itself on the showroom floor.
And it is starting to. As noted in Part One, the housewares section has been reimagined and the displays are impressive. I have seen pictures of a reimagined grocery section, which is supposed to have a strengthened focus on healthier foods. If those pictures of the prototypes eventually appear in the grocery department, that department, too, should show new signs of life.
In other words, closing the Canadian stores to concentrate on the American stores was not only a good business decision, it also appears to be one bearing fruit for Target. (That some post-Canada earnings reports have shown signs of life further supports that decision.)
- Target does not seem to have learned all of its lessons about international retailing. Although Target got many things wrong when it tried to enter Canada, it did recognize that, at the least, it needed to be culturally sensitive to shoppers in Quebec and made a strident effort to understand its culture. The problem was, Target didn’t understand the local shopping habits and just assumed people would change them, just because Target is Target. Target was wrong.
Similarly, although Target acknowledges that it failed in Canada, it seems to have ignored anything that could have been learned from the experience when the store opened an international website. The site allows visitors to shop at Target.com and ship to countries outside the USA. But this international website offers the same value proposition as its Canadian stores—fewer products available at much worse prices.
On the one hand, I doubt many Canadians will shop there.
On the other hand, visiting the site and seeing the crappy selection and lousier prices gives us a nice chuckle.
Perhaps that was the point. (Probably not, but just in case…)