Understanding Business Failure of Target - Case Study Example

Introduction

There are many companies, which are working in the retailing sector. They need to take substantial efforts to win customers’ attention, since new player should struggle with strong competition that can ruin even top level companies. However, with bad initial strategy and rushing development company can face problems even stronger than competition. One brilliant example of such failure is associated with Target.

This company tried to expand to Canada and find more customers, which will enable Target to expand to other countries and provide enough experience to the further ventures. The only thing in which Target succeeded in this Canadian venture is getting valuable experience. Idea to enter Canada has appeared due to the Zellers chain decline that caused them to abandon multiple stores in Canada. Apparently there were reasons for such actions, and here lies the main problem of the Target. Knowing that some location or building or even interior can cause such misconducts could have put Target’s executives on guard. They could check all issues, which potentially can lead to such problems. Using the bad location that was offered with discount by the Zellers was one of the reasons of the total collapse of expansion that resulted in the strong damage of main branch of Target in USA. All shops in Canada were closed and abandoned. Mainly Zellers’ were unsuccessful due to the difficulties of accessing them, furthermore, they had limited space for products. Target used to use huge buildings, which can store many products and present multiple products. It is the main feature for what Target is known. However, visiting Zellers’ buildings customers got just the opposite experience. Along with other features it made customers deeply regret of the support of Target and visiting their shops.

One more serious blunder is associated with something that is unacceptable for retail shops. Due to the lack of experience of handling specific applications and unestablished infrastructure, Target got empty shelves and lack or products to offer. Customers were just shocked seeing what can happen with store. There are only few examples, when top level retailers got empty shelves. This was caused by the chaos in the supply chain and bad communication between executives and heads of local supply-chain, since they got constant reports that shop is working in the regular manner, however, store managers saw serious problems with shelves replenishment. Target shops are known as one-stop shop, however, due to the lack of products to offer, company lost multiple customers, hence stores were located in awkward places and had nothing to offer. It is one more factor that contributed to the total failure of Canada expansion.

In addition to the internal issues, which have almost ruined the business, there were also external factors, which have added their strong effects on the success of Target. It is mainly associated with the price wars with one of the main competitors of Target – Wal-Mart. Latter is developed brand that already had their stores and conquered the location through the reliable prices and understanding customers’ needs, however, prices were the main weapon of the Wal-Mart to gain success. High prices, which were caused by the lack of infrastructure and warehouses coupled with lack of experience of working in other countries and empty shelves resulted in a disaster for Target that ruined all efforts and resources, which were spent in the Canada. These are main reasons of the Target Canada failure.

Root cause analysis

What is happened?

Firstly it is vital to identify the issue that happened. The main symptom of the problem can be observed as the chain of events, which have predetermined the further development of situation and the success of all future actions. Firstly, customers got the shops, which located in unpleasant and hardly accessible places, which decreased the overall performance and sales of stores. It was the particular characteristic of all stores in the Canada. It means that almost all stores were affected, thus company lost considerable amount of customers. Next wave of problems came after the introduction of ineffective and not-ready-for-application SAP system that can optimize the supply chain and help with auto-replenishment system maintenance. However, there were many reasons why application of this system is not recommended. One of the main reasons is untrained staff that had no experience in working with such systems, furthermore, Target has many products, since it is the chain of supermarkets, thus, there were many products, which should have been included into the system. Due to the lack of experience and bad skills, there were many mistakes, which caused problems with overall supply chain, since SAP controlled the amount of products which should be delivered and the remains of products in the local warehouses. Mistakes caused misunderstandings between the USA, Canadian suppliers and heads of the supply chains, since systems showed that store needs some particular product, while the stores are overfilled with it. This caused one more link of the overall failure, storages were overfilled with products, while shelves were empty, hence necessary products were not supplied. Consequent symptom that came after such problems – increasing of price and overall bad pricing that was based on the expenses, which enabled company to start the operations in Canada. Comparing the prices with USA Target stores, it is easy to observe that in USA they are lower and Canadian customers were disappointed. Company promised better conditions in the Canada, they said that Target would be the new alternative for Canadians. Instead customers got ordinary shop with empty shelves, however with high prices. All these issues together made Canada entering strategy absolutely ineffective. Company lost $9 billion and was forced to close many stores in USA to compensate loses.

How it happened?

Considering the problem and its existence, are many claims of unsatisfied customers who tried to purchase something but failed due to lack of products, furthermore, high pricing frightened customers and made them distrust the whole brand. One more issue that shows that Target has failed in the Canada, its profitability and amount of sales. According to the present reports, company operated at a loss, without any profits. Furthermore, finding the company in grave situation in the Canada, they decided to wrap up the operations and close the shops. That is the main indicator of disaster that happened.

When it happened?

Problem started from the beginning of the process of entering the Canadian market. It was the decision of the CEO, who decided to find more financing, since their operations in USA should be fueled and without proper expansion, company could lose even more resources. Thus, it was forced decision that was quite risky venture that was unplanned and barren of the proper strategy. It is impossible, even for the top level brands to enter new market without planning, preparation. Middle stage of this destructive process was predetermined by the decreasing of overall level of sales and ruining of supply chain. This stage was caused by bad preparation, misunderstanding of target market and lack of skills of executives to handle such situation. Though, even stronger minds from the American branch have failed to create some solution of all problems, which have already developed into true disaster. Last moments of the Target were predetermined by the total closing of all shops in Canada. The whole process of mistake and crisis lasted for 26 months that is quite long for dying company. Though according to the schedules, company managed to eliminate its shops in the Canada even quicker than it was expected.

Results of failure

Crisis resulted in $7-9 billion loss of funds, which could have been distributed among the local stores to increase their profitability and to get the competitive strength. Instead, company has lost these resources and cannot operate them anymore. Furthermore, company lost the brand loyalty from regions, which are adjacent with Canada, since these people know about the Target’s failure. Plan to maximize the profits and to get new source of financing has failed and company lost time, while other competitors developed their operations, introduced new products and systems. This failure’s impact is quite important for the overall performance of company, hence, company literally does nothing for over 2 years. It is considerable waste of precious time that has given more opportunities to competitors. Furthermore, it has powered them, since Target is strong competitor in the USA. While company was busy handling the issues in the Canada, competitors have developed their businesses to provide strong competition to finish the Target up. Overall effect on the business is critical, CEO admits that company took high losses. It is hard to compensate them and it is substantial damage to all structure and company.

Strategic options

Customers relations

The main mistakes, which Target executives made are associated with the rapid expansion that was not prepared and failing to learn the local customers, since it is impossible to be effective in some country without proper analysis of the target customers, which will be influenced. Target just used their vision for Americans, instead of development of Canadian model that will consider their expectations. Otherwise customers will be confused with actions they don’t really want to be applied. Furthermore, failing to face customers expectations can result in even stronger misconducts, which were illustrated above. Thus, to make the better strategy, company should firstly restore the trust of customers. It can be made through the application of e-shopping that is currently applied. Customers should understand that Target can provide reliable services and can sell good products on the regular manner. Conquering the customers and their trust will be the first step to the better relationships with customers that can help to restore the expansion in the Canada. It is important to prove customers that Target works in the USA in the better way than competitors. For such aim, company can use variety of HR techniques, which will help to spread the word about the company outside the US. One of the most effective ways to restore customers trust is to expand company’s activities to some other country to show that it can provide reliable services outside the USA. However, considering the current state of affairs, company cannot afford such changes in the actions.

Better strategic decisions

Having experience from the last try to expand to Canada, company should prepare for this expansion. It is very bad way to expand opening many stores at the same time. Company has the history of the careful and considered actions. Former CEO made only thoughtful actions, which were accompanied with the thorough analysis of the new environment. Better option is to open one store and to check the reaction of customers. This test store will help to test the supply chain and all associated services. They should be capable of handling one store. Gradual expansion of activities can help to open more stores and maintain better infrastructure. Company had this experience before. Executives, who made major mistakes expanding to Canada, should learn the corporate history of company to make better decisions. This experience can help to avoid such important mistakes, which can endanger the overall strategy. Haste and rush in the business are unacceptable things. Only planned ventures can succeed, at least they have more chances for success. There are many issues, which can predetermine the outcome of the business strategy. However, planning and considering main outcomes of the strategy, company can be prepared for certain situations and react on them in the proper way. Target failed to produce the plan of actions and rushed into the Canada without learning the market and understanding its main principles. However, Canada is not America. There are many peculiar issues, which should have been considered before expansion to make it directed on customers and local environmental features.

Security issues

Good business strategy that considers customers security and safety of their personal information should predetermine the application of reliable protective measures like the firewalls and intranet that can help to keep the data safe. Otherwise, the issue with stealing the information about credit card owners will repeat and it will definitely result in worsening of situation for Target. Recurrence of such issue will make customers believe that company cannot protect them from hackers and will not use their personal data in the stores that will decrease the level of customers’ satisfaction.

Self-definition

The main strategic option that will serve for Target restoration is the defining the company as unique and special company. Entering new market requires distinguishing the company from competitors. Otherwise customers will use their time-proved brands, they used to use, instead of application of something similar and new. Canadians should understand that company is going to offer something new, something special. If offering something can ruin the business strategy company has, thus, Target should invest in some particular products, which are relevant to the particular region. It can help to customize the products with relevance to the local requirements. Customers like respect and understanding of their needs and they will respond in loyalty and purchases. At this point company should develop the strategy that will aim national differences and products, which are peculiar for certain region.

Shifting the assortment

To avoid competition with the current players in the market, company should shift its value proposition, i.e. assortment of products. Food fights cannot produce the substantial profits due to their low profit margins. It is better to concentrate on expensive products, such as household appliances, variety of brand products such as clothes, accessories, etc. The remained place and resources should be spent on necessities, since customers always need them and having such products in the store can help to draw customers’ attention to brand and to be universal supplier of goods.

Back-to-school products

As one of the options to expand the assortment, company could concentrate on back-to-school products. This can help to address huge customers’ group. Having the brand and cheap products, company can easily manage the customers’ diversity and their expectations. These are the seasonable products and they are not popular during the year, however, in the high-season of back-to-school sales, Target can use its huge stores to sell variety of products and to offer specific services.

Proper scaling

Next Target business venture should not have so huge scales. It is enough to expand to some country with few little stores, which are used to learn the market and to get important experience towards the companies, which currently operate in the country and customers’ expectations. Having such information company can gradually push its activities. However starting with hundred of stores provides more problems than benefits. Thus, better option is to manage few shops, which will be fully established with good supply chain and assortment and then, having the experience in working with local customers company can open more stores. They will be supported by the existent stores both financially and through advices of experienced executives. Here company can hire more experienced employee, since they will have more time for successful expansion.

Conclusion

There are many issues, which resulted in the problems, which Target could not handle. The main root for all consecutive mistakes is rushing to occupy the abandoned shops by Zellers. It is well-known fact that without proper financing, company could lose fight with USA competitors, however, hasty entering some other market is not good strategy. All businesses require preparation before expansion. Good take away from this issue is to remember the corporate history. Company had many expansions during the early development former CEO had good insights towards the business development and could handle the Canada expansion, however, the company was ruled by other CEO that decided to rush development that resulted in nothing but failure. Considering the main mistakes and things, which could have been done in the other way, one should underline that there were many options, which could save the situation.

Considering the place, it is always important to preserve good location of stores or other associated building. Customers should have good access to the store to purchase products and influence on sales. Otherwise, customers can choose shops, which are even worse, but their positive factor that they are accessible. Location matters when it comes to the good logistics. It is hard to transport products to the inaccessible places.

Considering the brand loyalty, company should care about own brand and develop it in other countries. Failing to do that can result in customers’ negative attitude to the company and its ventures. Company should promote the brand with all features they have to make it truly effective. Brand that is effective in one country with all their positive features can be completely useless in other country. Furthermore, there are different environment that expect something new or something usual to what customers get used to. It is important to understand what changes brand should take to be effective in specific country or even region. Thus, it is not enough to have good developed brand in one country. It is vital to develop the brand to face local expectations, since Canadian customers have different requirements and can be disappointed with something that is popular in USA.

Summing up, there are many lessons, which can be taken from the Target’s failure in the Canada, it is enough to understand that business cannot develop in a few years, it cannot produce hundreds of shops in a short term. Many developed companies make it for many years, however, Target decided to do that in a few years. These time and resources tight conditions made executives to apply bad strategic decisions, which resulted in never-ending failures. They ruined the Target Canada and made it bankrupt. Using the experience of Target, future business owners will know what the fair way to bankruptcy is and how to solve substantial business issues. But the main lesson that can be extracted from this case is associated with the acknowledging the failure and redirecting all resources and efforts on supporting original business, instead of trying to restore failed business venture.