Target’s Canadian Omnichannel Fail

Who’s to blame for Target’s demise in Canada that will shutter 133 stores and lay off 17,600 people?

Target, analysts say. And Target alone.

The retail giant entered the Canadian market just two years ago at what is considered a rapid pace, particularly in the volatile retail market. But that rapid growth, coupled with poor management, prices that were too high and not enough merchandise in stock is exactly what caused this American retailer to lose $2 billion and send its operation north of the border into bankruptcy protection. Once Target predicted they wouldn’t make a profit until 2021, corporate management realized it’s time to close up shop.

While the nature of Canada’s geographical landscape differs from the U.S. (it’s more spread out, making distribution channels fewer and farther apart), most analysts say Target’s blind eye to those challenges left the retailer unable to predict how the market would react to it joining Canada’s retail scene.

“Target blew it,” said Doug Stephens, founder of the Retail Prophet consultancy. “The Canadian retail market was not as robust as Target and others believed it was going in.”

Like others, Stephens said that Target expanded too fast, and opened in locations that didn’t mix with consumer demand. Failing to keep shelves stocked with merchandise — a retail 101 flub — Target’s strategy left consumer confidence low, which kept shoppers out.

Retail 102 flub.

Ultimately, distribution issues drove up prices and kept shelves empty.

“It all added up to an insurmountable failure that was costing them close to a billion dollars a year,” Stephens said.

But how was Target so off the mark?

David Gray, from Canadian-based DIG360 Consulting, said the hype of Target never took off, but what was worse is that corporate never caught on that the Canadian market wasn’t the right fit.

“It’s definitely Target’s fault,” he said. “Consumers never really fell in love with Target up here. …It seem audacious to get 133 stores online in over a year over that span of geography and to build a distribution network at the same time.”

By last Thursday (Jan. 15), the retail giant finally succumbed to its failure and announced publicly that it would be pulling out of the Canadian market.

“After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” Target CEO Brian Cornell said in a statement. “Personally, this was a very difficult decision, but it was the right decision for our company.”

Cornell admitted exactly what analysts suspected: “We missed the mark from the beginning by taking on too much too fast,” he said. Cornell has only been CEO since June 2014, and already has a mess to clean up.

Now Target has set the retail standard of what not to do when expanding in a new market — particularly a new country. Besides expanding too much, too quickly, the lack of an online presence for Canada’s stores was also suspected as a reason for its failure. For a retailer that focused on its e-commerce channels in the U.S. during the recent holiday season, Canada’s Targets weren’t given the same attention.

“Each year we are seeing a compounded 12 percent to 15 percent year growth in e-commerce sales in Canada. To not have a website serving Canadians at this critical juncture is really a problem,” said Doug Stephens, founder of Toronto-based advisory firm Retail Prophet. “It is not all about the sales you process on your website, it is the degree to which consumers now pre-shop online, deciding what they want and then go to the store and get it or buy online and pick it up in the store.”

Target’s expansion was so rapid, including rolling out 124 stores in the first year alone, the company never had the chance to see what they were doing wrong, said one consultant. There was no time for testing, no beta market and no market studies about how Target would actually perform in a market outside the U.S.

“Opening so many stores at once killed the opportunity for figuring out what worked and what didn’t,” said Joe Jackman, CEO of Jackman Reinvents, a Toronto customer experience consultancy. “They missed a test-and-learn, which could have been very instrumental to them getting it right for the Canadian market.”

Pricing was also a major sticking point with consumers. At the time of Target’s Canadian launch, the value of the Canadian and U.S. dollars were reported to be similar but the prices of retail goods in the U.S. and Canadian Target stores weren’t. That didn’t sit well with consumers. Target also didn’t offer its entire product line, leaving the Canadian shoppers shortchanged.

“We were not as sharp on pricing as we should have been, which led to pricing perception issues,” Cornell said, who admitted the company was losing money every day. “As a result, we delivered an experience that didn’t meet our guests’ expectations, or our own.”

But even beyond those flaws, what really gave Target the kiss of death is said to be its supply chain infrastructure mismanagement and the logistics of dealing with third-party providers.

“The people that I have spoken to in the industry indicated the majority of Target’s issues had to do with a disconnect between the information in the computer system and the information that was on the product,” said Marc Wulfraat, president of MWPVL International, a Quebec-based supply chain and logistics consulting firm.

For example, if the retailer’s inventory management system reports to Target that the warehouse is shipping 10 packs of three items instead of 10 cases of three items, the logistical side of inventory becomes a mess. When a unit of measurement is wrong, Target may have ordered too many of one type of goods and too few of another. It’s been said that Target stores that were opened early in Canada didn’t track its inventory management properly, which led to a gap in products that couldn’t keep up with customer demand. “When you have computer-assisted ordering, which most retailers have — when a computer does the orders instead of a stockkeeper manually going up and down the aisle — the systems are designed to automatically reorder and replenish the store shelves when [the item] hits a minimum number,” Wulfraat said “If your units of measurement are messed up, you can throw computer-assisted ordering into a tailspin. …All hell can break loose.”

And that’s exactly what happened in Canada, retail experts claim. Now, the retail giant must brush the $2 billion debt off and move forward to better days. That means focusing on its U.S. homeland and doubling down on efforts in the U.S.

“I’m very bullish about the future prospects of our business in the U.S.,” Cornell said. “But we also recognize we have a lot of work in front of us over the next two years or three years.”

And that won’t include Canada, at least not anytime soon.