The recent Target closure announcement in Canada came as a shock to many and is the centerpiece of conversation and case studies on international retail and market expansion. I found the unexpected reactions of most to be surprising – as it took just one visit to my neighborhood Target to foreshadow the company’s inevitable retreat. I distinctly remember returning home after heading out to grab a few last minute holiday items and announcing over dinner, “Target is going to close”. “Why?” they asked, “How can you be so sure?”
To be honest, it only took a few quick glances to be certain of what I was saying: shelves were empty, the parking lot was empty – and it was the Christmas shopping season! Every other store surrounding was buzzing with activity, it was a stark and noticeable difference and I was sure everyone else noticed it too.
However, I was still surprised to hear when Target made an announcement to close 133 stores across Canada affecting 17,600 employees. Based on released information, Target said it expects to report about $5.4 billion in pre-tax losses for its 4th quarter, ending in January 2015, due to the write-down of the Canadian investment, in addition to exit costs and operating losses. Target launched in Canada in March 2013, not quite two years ago! I had expected they would close their less profitable stores, but not to exit so entirely.
Unfortunately, what began as an exciting exploration and case study on US Retail expansion to Canada has now concluded with Target being added to the list of failures in International Market expansion. When I taught International Marketing, I loved bringing up stories of BIG companies failing due to Cultural differences – this was a particularly interesting case because it involved a rapid expansion between seemingly “similar” countries, the US and Canada. It is easy to forget how unique each country and its cultures and populations are – even if they speak a similar language. Target is a classic case of failure due to “Illusion of Similarity” issue.
In International Market expansion, companies need to thoroughly analyze the culture, economy, political/legal landscape, in addition to the competitive environment. You still need to do the fundamental market analysis taking into consideration blind spots in your research. A famous blind spot is language! Yes, we speak English in Canada, but we also speak French. Yes, we are North American neighbours but Canada’s history and geography is very different from the US.
Some interesting notes:
• Canada spans 9,984,670 km² (or 3,855,103 sq miles).
• According to the World Bank, Canada’s population is 35.16 million.
• According to the Stats Can website, “The population is not distributed uniformly throughout Canada’s territory. The vast majority of people who make up the population of Canada live in the southern part of the country, near the American border, leaving the northern areas largely uninhabited.”
So what do we get from this? Canada is a vast country that could present a supply chain challenge. Urban centres in Canada are dispersed and Canada’s population is nearly one tenth of the USA.
In addition to the above, the historical and cultural fabric of Canada is different from the USA. It shocked me when Target didn’t do any test marketing! What was that? They entered Canada in a full sweep replacing a lot of Zellers stores (a brand that Canadians felt was Canadian like them).
Another serious issue is their differentiation strategy. “Who are you?” I asked as I walked through empty aisles in the Target store nearby. Their merchandise wasn’t cheap, and it wasn’t differentiated from other retailers.
Who did their Market Research for them? I always asked myself this question and know that this case will stir the discussion on this topic further. In asking this question we must always remember that in every failure lies greater opportunity –Target’s miss will undoubtedly stir a deeper understanding of market strategy and serve as a valuable lesson for any company or group looking to expand and market themselves internationally!