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Target Canada
Pride took down a giant: How Target’s corporate hubris was its Canadian undoing

[url=http://business.financialpost.com/author/theresatedesco/]Theresa Tedesco
 | January 15, 2015

Treat us like Americans — or else. That’s what Canadians kept telling U.S. retailer Target Corp., by staying away from its sparsely stocked and overpriced stores for almost two years. But the Minneapolis-based giant, which had staked its celebrated name on its first expansion foray outside the U.S., seemed determined to continue forging ahead with an ill-fated experiment that never gained traction in the diverse Canadian market.

Less than four years after announcing its imminent arrival, and two years after opening its first stores in the northern frontier — a place that should have been the easiest and friendliest market for the second-largest U.S. discount chain to gain a foothold — Target announced it will exit Canada by mid-year.
That the company’s brand, so revered and lauded in the U.S., had been beaten and tarnished in Canada was a given. But just how badly came to light Thursday when the Canadian subsidiary filed for protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA) in Toronto. It showed more than $2 billion in operating losses since 2011, when Target acquired 220 locations from now defunct Zellers Inc., a subsidiary of Hudson’s Bay Co., and announced its expansion into Canada with much fanfare.

The company was hemorrhaging millions daily, enough that it would have taken until 2021 to earn a loonie in profits. The bottom line: 133 stores across the country are closing; 17,600 employees will be out of work. And the cost of the Canadian misadventure to the U.S. parent? A cool $5.4-billion write down.
Such a needless waste. Rarely has there been a company to enter this country with more brand recognition than Target had. Canadian shoppers accustomed to cross-border shopping waited with great anticipation for its arrival in March 2013. All we wanted were U.S.-style Target stores in Canada, slightly retrofitted to adapt to our national idiosyncrasies, namely frugality and politeness. Instead, what we got were empty shelves, higher prices, sketchy customer service, and apologies.
“You can’t think of a retailer that had a more positive image even before it was launched in Canada than Target. If you can’t expand into Canada, where can you?” asks David Soberman, professor of marketing at the Joseph L. Rotman School of Management at the University of Toronto.
Was Target’s demise in Canada an extreme example of internal mismanagement? Did the brain trust in Minneapolis vastly underestimate what it takes to create and build a new business in a new country? Those were clearly part of the problem.
But it’s likely the bigger culprit was hubris. After all, excessive self-confidence and pride has forced the retreat of many corporations from markets before Target — and will afterward.

Mighty Walmart, the world’s largest retailer, was forced to exit the German market US$1 billion poorer in 2006, despite the fact that — being Europe’s largest market, with more than 80 million people earning high incomes, robust spending, and excellent infrastructure — Germany looked like a no-brainer on paper.
But apparently, Walmart’s mistake was thinking Germans liked to shop just the same way Americans do. By the time executives figured out that the one-size-fits-all business model doesn’t always, it was too late to fix the damage. After eight years, the Arkansas-based chain waved the white flag and beat a retreat.
Home Depot learned its own hard lessons in China in 2012. After six years, the home-improvement giant gave up trying to replicate its winning formula in the world’s second-largest consumer market, citing cultural differences.
And Canadian Tire, a national retail institution here, had a disastrous foray into the U.S. in the 1980s that left the company on shaky financial ground for decades. Expanding into the hyper-competitive U.S. market is tough enough, but the retailer didn’t stand a chance selling hockey sticks and snow tires in its Texas-based Whites stores.
I used to be the mayor of sim city. I know what I am talking about.

Any speculation on who will assume their retail locations? 

The area at the Conestoga Mall is quite large.
I used to be the mayor of sim city. I know what I am talking about.
Nordstrom or Simons would be nice, in the fantasy category.
(01-15-2015, 09:18 PM)Drake Wrote: Any speculation on who will assume their retail locations?

I'd say Walmart.
Too close to the existing Waterloo Walmart, no?
(01-15-2015, 10:39 PM)panamaniac Wrote: Too close to the existing Waterloo Walmart, no?

They would have to close that one, yes. My impression is that it isn't doing so well, so closing it wouldn't be much of an issue.
What do you think the effect of this news will be on Cambridge Centre? I have the feeling that it is already struggling with the Sears becoming a clearance store and numerous empty/local storefronts. The mall will essentially be left with only one real anchor (the Bay) after Target exits.

Conestoga should fair well as it has a good variety of other stores. I'm not too sure about the Laurentian Centre, this location could be filled more easily by another box tenant that would not normally go into a mall or subdivided.
I don't think Walmart will move into Contestoga, too close to the St. Jacobs store. Possibly a Home Outfitters or similar outlet, or maybe it would be subdivided into smaller parts for "outlet" type stores, such as Hilfiger etc...
There's already rumblings that this will signal a large expansion opportunity for Giant Tiger.

In the mean time, we can all enjoy the second round of deep-discount-everything-must-go sales from these stores in 3 years!
(01-15-2015, 11:26 PM)schooner77 Wrote: I don't think Walmart will move into Contestoga, too close to the St. Jacobs store.  Possibly a Home Outfitters or similar outlet, or maybe it would be subdivided into smaller parts for "outlet" type stores, such as Hilfiger etc...

They would have to close St. Jacobs, for sure. I personally prefer the subdivision idea, but think it is unlikely.
(01-16-2015, 12:50 PM)Markster Wrote: In the mean time, we can all enjoy the second round of deep-discount-everything-must-go sales from these stores in 3 years!

Don't count on it. I was disappointed with the Zellers liquidation. It was a, er,  giant paper tiger for real bargain hunters. Most stuff was only 10% or 20% off for the first several weeks. Then after everyone had rifled through the merchandise and cherry picked the lukewarm bargains they raised the discounts on remaining inventory to a whopping 30% off. Maybe Target will be different but I'm not holding my breath for it.
Hey, I never said that deep discount stuff was the best stuff!
Target did have pretty good prices when they had clearance tags on the products. We got numerous things including household cleaners for 70% off.

The liquidation percentages will likely be set by the liquidator rather than Target itself.
Someone suggested the Irish company Primark as a potential new tenant; they recently expanded into the northeastern US in former Sears locations. Would be interesting to see how they compete with Simons if they do expand in anglophone Canada.
Call me crazy, but I wouldn't be entirely surprised to see Zellers make a comeback, surprisingly better than before. After all, Target bought out Zellers' leases - not the company or brand itself. In fact, two Zellers stores still exist and are open as HBC discount/outlet stores in Toronto and Ottawa. Maybe this was a strategic move on HBC's part to keep the Zellers brand on a very low profile to give them the opportunity to revive it if the opportunity arose. Just think, they could regain some of their old retail space back for pennies on the dollar and pick the best of the best locations.

While Zellers stores were dated and usually a mess, they stuck around for a long time in their sorry state. Perfect opportunity to learn from both Zellers past mistakes as well as Target's and be a perfect Canadian competitor to Walmart and quite possibly Sears if they go the same way Target just did...
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