Target's launch into Canada 'a multifaceted failure'

Target's foray into Canadawasseen as a natural expansion for the American retailer that for yearshad beena magnet for Canadians,attracting hordes of shoppers across the border.

But nearlytwo years after itsmuch hyped andheralded launch, Target has thrown in the towel,a victim, some analysts say,of bad management, poor planning, and misguided and overambitious expectations.

"I think itsa multifaceted failure," said Doug Stephens, retail analyst andauthor ofThe Retail Revival: Re-Imagining Business For The New Age of Consumerism. "The planthat they undertookwasimperilledand overly ambitious from thebeginning."

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Having lost nearly $1 billion in its first year in Canada, and facing moremultimillion-dollar losses,Target announced on Thursday it would discontinue its operations in Canada and closeits 133 stores.

"When you open a retailstore, the first three months arevital.You'retrying to connect with yourconsumers and they didnot connect," said BrianSozzi,CEO and chief equities strategist ofBelusCapitalAdvisors."Andtheyve beentryingtoplaycatchup ever since. Its been downhill since theyopened the first store."

Most critics say Target was overambitious from the start, rolling out 130 stores in just over a year. But some analysts say thatbefore the first customer walked into a store, Target faced significantchallenges, which included entering a crowded and competitivemarketplace.

Overestimatedpotential market

"They overestimated the size of thepotentialmarket for them, for their business," saidAntony Karabus, analyst and president of Hilco Retail Consulting. "Theyunderestimatedthe fierceness ofthecompetitionand the loyalty to existing retailers" whichinclude Walmart,Canadian Tire andHome Depot.

"You can only unseat an incumbent if you bring something better. Thats the fundamental issue. They didnt bring something better."

Targetalso signed a costly "trainwreck" of a dealin which itinherited the leases andlocationsofZellersstores across the country," said Brian Sozzi,CEO and chief equities strategist of Belus Capital Advisors.

While Target would save money on building costs,most of its Canadianstores would not be based on their U.S. models that havebeen so successful. As well,theCanadian stores were not in "Triple Alocations," and manywere not big enough,nor did they fit nicely with Target's brand, Stephens said.

"In the U.Swhen youwalk in the front door ofa Target,you know exactlywhereto go. Thefloor planis predictable, you know where to go for what you want," Karabus said. "So you're not getting the frustration of running around the store trying to find what you want. [In Canada], you didnt know where to go."

Thenthere was the issue of stock, or lack of it.

I recall going into one of their grand openings in Aurora, Ont., and seeing hundreds of linear feet of empty shelving. I was astonished," Stephens said."It became a thing. People began to ask, 'Why is there so much empty space?Where are the products?'"

Target admitted it had supply chain issues but promisedto fix them.Instead, the problems persisted, even into the recent holiday season.

"They simply didn't have the right sort of enterprise managementsoftware in place to respond so when itbecame evident they were out ofcertainthings, theydidn't have the right systems in place," Stephens said.

'Flying blind'

But Target also failed to acquire the sales history of the Zellers stores, meaning they were "essentially flying blind" upon their launch.

"They had no idea what they would sell,what they should stock, how much of it. So Day 1,when they openedtheirstores, they had no clue," Stephens said.

Meanwhile, the stock they did havefailed to exciteconsumers.

I went to [Target]a number of times inCanadaand I didnt see a lot worth buyingwhereaswhen I would go to Target in theU.S. there's always a treasure hunt," Karabus said."Theres always something."

Pricing was another issue. Many consumers, used to the deals in the U.S.,complainedCanadianprices were just too high.

"They didnot drive that right balance of great assortment andappropriatepricing,"Sozzi said. "It wasnt until this holiday season where they tried to get much more aggressive on pricing, triedto be much more pricecompetitive.But by then, the customer was already turned off by them."

"Their price point should have beensharper, should havecreatedmore wow around theirapparelassortments," he said. "They just didnt have enoughexclusivepartnershipsinplaceto get peopleexcitedabout the Target brand,to getthem moreexcitedabout shopping at Target than at Walmart."

Stephens said Target should have focusedon the 20 per cent of the stores that weregenerating or had the potential to generatethe lion'sshare of the profits and cleave off the rest.

I think what they ought to have done right away is say 'OK, we have a really really horrible situationon our hands right now. We have 130 stores that are substandard and failing across the country,'" Stephens said. "'But let's pick out the must-winmarkets. Let's pick the stores wherewe simplycan't afford to lose and let's apply every organizationaland supplier resource to fixing the situations in those stores.'"