Less than two years after entering Canada, Target shocked the retail world by pulling out. After accumulating $2.5 billion in losses, the Minneapolis-based company will shut down all of its 133 Canadian locations and lay off 17,600 employees.
In a blog post, Brian Cornell, Target’s Chairman and CEO, said the decision to exit Canada was the best option available to the company. “After extensive internal due diligence and research, paired with counsel from outside experts, we fulfilled our obligation to do what was right for our company and our shareholders, and made the decision to exit Canada,” he wrote.
When the retailer first announced plans to expand north, most people expected the company to succeed. In fact, using Vision Critical’s customer insight platform in 2012, we found that over half (52%) of Canadian shoppers who were aware of Target at that time were excited that the retailer was coming. And of those shoppers, four-in-five (81%) expressed interest in visiting the new Canadian locations. Target’s sterling reputation and brand equity gave them a head start crossing the border.
So what went wrong?
Cornell offered several explanations, including the company’s quick expansion, “We missed the mark from the beginning by taking on too much too fast." Some experts point to the weak Canadian dollar as a contributing factor. Others believe Target underestimated the power of Wal-Mart Canada.
Target’s struggles in Canada can also be attributed to a miscalculation of what makes the Canadian shopper tick. The company assumed it could coast on its reputation, but its actions in the early stages of the expansion suggests it didn’t understand why Canadian customers loved Target’s U.S. stores. Here are 3 things Target didn’t get right when it comes to meeting the expectations of the Canadian shopper:
- Sticker shock
Target Canada’s lack of customer intelligence is most evident in the pricing discrepancy between American and Canadian stores. In January 2015, shortly after Target made the announcement about its Target exit, Vision Critical used its own customer intelligence platform again and asked 1,505 Canadians about their thoughts on the retailer. We found 89% of Canadians thought Target didn’t live up to its tagline, “Expect More. Pay Less.” 53% thought Target stores in Canada were inferior to US stores when it comes to offering low prices.
In 2012, we warned that Target would need to explain any potential major differences in pricing and promotions to Canadian shoppers if they wanted to avoid disappointment. Target Canada missed the mark in this regard.
- You can’t ignore customer experience
Our 2015 study shows that 70% of regular Target shoppers in Canada have also shopped in the company’s US stores. These customers not only have a perception of what Target is all about—they also already have an experience with the brand. Unfortunately, 40% of the shoppers we engaged said that the shopping experience in Target Canada was not as great as their experience in the US.
Target’s failure in Canada demonstrates the importance of knowing not just perceptions about your brand, but also your customers’ expectations and their previous experience with your company. In this case, Target’s expansion would have been more successful if it engaged Canadian shoppers who were also Target US shoppers and sought to understand more about their experience.
- Empty shelves = unhappy customers
Target Canada’s empty shelves didn’t help its venture. It failed to create an adequate distribution system, which prompted customers to complain online about low inventory. The supply chain issues also meant it couldn’t offer online shopping right away, which further frustrated shoppers. Tapping into customer intelligence could have helped Target Canada better anticipate the demand of its core constituency.
Our 2015 study shows 41% of Canadians thought Target Canada was not as good as Target US when it comes to apparel selection. Many Canadians also thought that Target Canada’s selection in home furnishings selection (35%) and home décor selection (36%) was not as good as its US stores. Some insight into what Canadian shoppers visit Target for would have helped the company plan its product selection better.
Target’s failed foray into Canada demonstrates the value of deep customer intelligence before and when entering a new market. But to be fair, Target eventually realized its missteps. “We delivered an experience that didn’t meet our guests’ expectations, or our own,” Cornell admitted. Customers’ negative sentiment became so strong that it proved difficult to reverse.
Companies should see Target Canada as a cautionary tale. Today’s retailers need to truly understand their customers—not just what they are buying but why they are buying. Customer insight has never been more critical.