Targets Canadian Operation Analysis - Case Study Example

Target’s Canadian Operation Analysis and Date Abstract Target Canadian, a branch of Target International Corporation, is one of the subsidiary companies that faced many setbacks because of its expansion into Canada in 2013. Having successfully positioned its products in the United State, off which, even attracted customers from Canada, it embarked on a mission to establish itself in the country officially. However, despite having laid down the necessary logistic and financial plans the Corporation failed to maximize on the returns, which made it, incur a lot of loss. This paper, therefore, will try to discuss and evaluate the reasons as to why Target Canadian goals of gaining access to Canadian market failed. The paper will also evaluate whether expanding into Canada was a mistake at first, or if they are, just the common problems and challenges that a corporation faces as it try to expand. The paper will also discuss whether they are still opportunities for the company further expansion despite having failed to meet its target at first. Key words: Target Canadian, stores, customers, opportunities, expansion, mistakes. Introduction Target cooperation is a multinational retailing company which is located in Minnesota in the United State. It was established in 1902 and its headquarters were located in Minneapolis in the US. The company has several subsidiary stores in many countries all over the world. In 2011, the company launched its first subsidiary store in Canada to oversee its operation in that country. According to Legge and Weinstein (2013), by the end of 2013 Target had gained access to the Canadian market after acquiring 189 leasehold stores at a tune of $ 1.8 billion operated from Zellers which is owned by Hudsons Bay Company. The company intended to first utilize 125 stores for its operation by the end of 2013 (Legge & Weinstein, 2013). In May 2011, target started its first operation in Canada, when it opened 105 stores in the first phase. It intended to convert them into target outlets in September of the same year. During the same year, the company bought an additional 84 stores accounting for a total of189 stores (Austen, & Clifford, 2012). The company later renovated around 135 stores in its favorite locations to represent its brand image. During the same year, the company laid off all the initial workers of Zellers irrespective of their qualification and experience and announced a plan to employ a total of 27000 new employees (Legge and Weinstein, 2013), On March 2013, the company opened its various stores across the country, some of which operated as test stores. The stores first opened in Milton Guelph and Gergus, later Target expanded its operation in other parts including the western part of Canada. It also installed Starbucks stores in several parts of Canada. According to Advameg Inc (2012), Target experienced some setbacks after launching its operation in Canada by losing $ 800-900 millions after a few months of its operation in Canada. Target Northern expansion drivers Target decision for expansion in the Canadian market was a wise decision considering its strong brand name and the saturation of the retailing space in the United States. Given than the retail space in Canada is not yet saturated, with only 14 square feet of retail space per capita compared with 23 square feet per capita in the United States, this was a nice consideration (Bruwer , Lesschaeve, & Campbell, 2012). In the meantime, retail construction in the US was almost drying up and, therefore, Target future expansion in the country seemed unprofitable and impossible. With more space for expansion, less competition, higher margins and their unique culture, Canada was an inevitable destination for expansion. Due to the Canadian strong perception and passionate love for the Target brand and products, it was prudent for the company to consider its expansion in Canada. For several years, Canadians had a tendency of crossing over in droves to the United State to shop at the malls nearby, due to the low prices of the goods. According to Legge and Weinstein (2013), it was estimated that the country retailers lost about $20 billion annually due to this crossing over. Therefore, Target had a very sound aim of capitalizing on this crossing over gain. Another motivation under this was the increase in cross border duty, which curtailed many from shopping in the US, which was put in place in 2012. Target, therefore, aimed at taking this opportunity to provide the goods to the Canadian, which it enjoyed from the US at a small fee. Despite having a lot of unsaturated retail space, the country is also under retailed and under land loaded. Therefore, Target expansion into this country seemed profitable at the first glance. The country, also, had a diversity of active retailers and an international company like Target was well-suited to operate there. Bruwer, lesschaeve and Campbell (2012) showed that four of the largest recognized retailers in Canada had only 28% of the market shares compared to 12% market shares of the US four largest retailers. With this low market share, any company with intention of investing into the country had very high chances of survival. In addition, Canada has diverse demographic, which is very important for investors and retailers. Just like the United States, Canada was an immigrant country with a very strong cultural mosaic (Bruwer, lesschaeve, & Campbell 2012). The ethnic and cultural groups were allowed to preserve, exercise and maintain their identity just like in the United State. This translated into a strong spectrum of consumer preferences and taste like in the US. Therefore, Target corporation products and service could source a good market from this diverse group of consumers. Target Canada operation mistakes Target Corporation had very high expectation to achieve high profits within a few months, but they realized that this was not the case when they started incurring losses. The expansion into the Canadian market for Target Corporation had a number of mistakes and assumptions. First, the company lacked a very good strategy of penetrating into the Canadian market. According to Laroche and Mcdougali (2000), being a new company in the country, Target started with many stores at once, some of which had empty shelves and lacked the demanded goods. It could have been wise to start with a small number of stores in order to learn the consumer’s behavior in Canadian rather than assuming they were same with those of the United States. According to Laroche and Mcdougali (2000), this was very challenging since Target was not very much acquainted with the history of the country, yet it opened very many stores under a new management; it could have been prudent to start with a few stores. This could have first helped them realize consumers’ preferences and taste that were very crucial for basing their future operations. This, in the long–run, could have helped them to adapt to consumers needs and expectation in subsequent years. The expansion strategy was, therefore, quite weak since the company failed to recognize and address the needs of the consumers, prior to the starting of the business. Even on its first official launch, the company was criticized for running out of some common basic products. Austen and Clifford (2012) indicated that according to a survey conducted recently by Forum research, among those consumers who shopped at Target only 27 percent of them were found satisfied with the company. This percentage was far below that of their competitors, which stood at an average of 50 percent (Austen, & Clifford, 2012). Target Corporation also failed to realize the strength of its competitors such as Wal-Mart, which had many years of experience in the country. The company, therefore, embarked on a mission of offering goods at a higher price than that of its competitors. Austen and Clifford (2012) showed that despite Target making its stores attractive; it failed to capitalize on the prices of the commodities, therefore, translating to low returns. Also, the goods the company offered were of poor quality compared to those offered by its rivals as noted by customer satisfaction report. Target, at first also lacked good inventory methods, which translated into many empty clothing racks and empty shelves. These problems could also have been contributed by the company’s failure to develop programs and ways of coming up with its exclusive brand. The company failed to take brands like Beaver canoe a less costly athletic wear Root that could have replaced the costly ones locked up by its competitors. In addition, the company failed to take into consideration the various Canadian rules and policy on tariffs and packing laws. This could have raised the cost of operation, which translated to higher prices for its products (Austen, & Clifford, 2012). In addition, cost factors such as wage rates, taxation, transportation cost in Canada, which they did not project carefully at first translated to high prices of their products that finally made them to lose a big size of customers. Target Corporation, when it first intended to invest in Canada, embarked on setting its goals that were too lofty and costly. According to Legge and Weinstein (2012), in addition to $1.8 billion Target spent on acquiring the Zellers leasehold, it also spent an additional $ 1.5 billion in capital expenditure. This extra money was used in building the distribution channel and logistic systems all over the country. The final expenditure tag finally exceeded the planned projections. This extra spending was estimated to reduce its share per capital by $16 to 20 cent, which was higher than the estimated $ 10 cent per share (Legge, & Weinstein, 2013). This predicted a failure or a loss at the first instance, even before starting its operations. It further incurred unplanned expenses in assembling the management within Canada to carry its operations. All these further diluted its profit margin. Target Opportunities for further expansion The Canadian target corporation should continue with further expansion in the country since there are still huge opportunities in Canada. The corporation should aim at improving product positioning through generating a marketable product mix and through understanding of its customers specific issues and needs. To achieve its goal of expansion, the corporation should embark on offering aggressive promotion and cheap good. Target should also engage itself in product positioning in order to acquire a big size of the customer and maintain them. According to Advameg, Inc. (2012), Target future expansion could also be successful with its current partnership with the local designer in Canada. This will help ease its perception from Canadian as a retailing company that is taking over the retail business in the country. For example, Target partnered with up-and coming local designers. Its focus on design on beauty fashion and other product line will help it have a very strong competitive advantage over its rival competitors like Wal-Mart. Target corporation further expansion in Canada can be aided by provision of secure debit card and offering good discount for those using them. Although the corporation breached data contract when its website was attached and information of 700000 consumers exposed, it promised to compensate for the loss (Legge, & Weinstein, 2013). Those affected were given a one-year free shopping and a safeguard on their cards. This was aimed at retaining their confidence toward the corporation even after the incidence and maintaining their loyalty. The company also reduced the shopping cost with a discount of 5% for those who use the card (Legge, & Weinstein, 2013). Recently Target corporation expansion is being accompanied by good inventory and logistic strategy that will make good available to consumers at a one shopping at once. The corporation through devising its own product line and product mix after learning from their first mistake they may end up making profit in future. The company has also launched a E-tailing program that will boosts its sales considerably References Advameg, Inc. (2012). Target Stores—Company Profile, Information, Business Description, History, Background Information on Target stores. Retrieved from http://www.referenceforbusiness.com/history2/50/Target-Stores.html Austen, I. & Clifford, S. (2012). American Retailers Face challenges in Expanding to Canada. The New York Times. Bruwer, J., Lesschaeve, I., Campbell, B. (2012). Consumption Dynamics and Demographic of Canadian Wine Consumers: Retailing Insight from Room Channel. Journal of Retailing and Consumer Services, 19 (1), 45-58. Laroche, M., & Mcdougali, G. (2000). Canadian Retailing. Toronto. Mcgraw-hill: Ryerson, pp. 103-118 Legge , M. & Weinstein, D. (2013). Target Explores Canada :Adventure in Canadian Retail. Ithaca, NY: Baker Program in Real Estate, pp. 204-41. Read More