In 2012, Target expanded its business into Canada. The proximity to the U.S. as well as Canadians’ familiarity with the brand made expansion across the border seem like a natural step for the retail powerhouse. However, after only two years, Target faced $2 billion in losses and announced plans to close all of its Canadian stores. Here are some of the reasons the global expansion led to an exit decision:
Target was initially able to minimize its capital costs by purchasing obsolete stores from a former Canadian discount chain. While this gave Target quick and affordable access to a high number of locations, the stores were not designed for Target’s big box format. Also, the association created by locating the new Targets in outdated spaces damaged its “Expect More, Pay Less” brand reputation.
Target compromised quality for speed to market. The company opened 124 stores in only two years, and essential parts of the business, such as inventory planning, could not keep up with that pace. As a result, empty shelves and stock outs were an issue. This was especially disappointing for Canadian consumers, who were accustomed to seeing abundant merchandise in U.S. stores.
- Target faced stiff competition from Walmart, which has been present in Canada since 1994. Historically, Target’s trendy and more fashionable merchandise had helped the brand distinguish itself. However, its Canadian assortment lacked these qualities, which put Target in the position of having to compete on price, which is Walmart’s sustainable competitive advantage. Walmart responded with a price war that they appear to have won.
- Each of these factors put Target’s brand equity, one of its most precious assets, at risk, and ultimately it was left with little choice but to pull out of the market. While opportunity may still exist in the future for Target to re-enter Canada, its failed first attempt is a good lesson for companies considering expanding operations into new global regions.
- 1) Evaluate the three criteria for divestment for Target Canada. Did Target Canada meet each criterion? Explain.
- 2) Imagine you were president of Target Canada at the time when Walmart started the price war. How would you respond to the war? Was there any way to win? Be sure to explain your answer here. Should they try to win? Explain why or why not. Please be specific in your answers.