Target Canada: Internal Analysis - Case Study Example

Target Canada: Internal Analysis Introduction United States based discount department store Target, opened its Canadian subsidiary in 2011 after overtaking the old locations of the Zellers supermarket chain. The stores were opened to public after significant renovations and remodeling with a total of 124 Target stores operating in the country by 2013 (Strauss, and  Krashinsky, 2013). Target had entered the Canadian market to take advantage of the local population’s familiarity and experience with the brand across the border, the favorable customer feedback prompted the chain to launch an intensive penetration strategy during one of the most competitive periods in Canada’s retail market. Target has met with considerable failure in their initial operation in the country, reporting losses of nearly $1-Billion in financial year 2013 with operating losses increasing by 11% in the first half of fiscal 2014 (Harris, and  Austen, 2014). The brand is struggling to maintain its value promise of “Expect more. Pay less” in Canada. A combination of over ambitious expansion strategy and unexpected supply chain problems have caused Target to lose profits and customer good will in the country, the following internal analysis tools will point out some of the major issues concerning the management at the moment. Generic Strategy In America the company is following a very balanced generic strategy combining broad low-cost and focused differentiation; their merchandise is steeply priced yet the perception is that the choice and quality available is more exclusive. This strategy is strongly supported by marketing endeavors which take up to 2% of the company’s revenue (Strauss, and  Krashinsky, 2013). While the same strategy was expected to be followed in Canada in reality due to the pricing and operational issues (discussed in detail below) the company has shifted to a “broad differentiation” strategy by offering higher quality service and designer, branded products at a significantly increased price than both their local and US counterparts. However, the strategy was not well planned out and the company is struggling with its execution in the market. VRIO framework This tool can help in understanding the larger strategic vision of an organization; for Target Canada this analysis is important since their initial entry strategy failed to elicit the desired response. This framework describes Target’s strategic brand position in context of the Canadian retail market: The Question of Value: The brand of Target is built upon a perception of high quality choices available at a low price for the quality-conscious customer. This value proposition had served the retailer well in the US market, gaining it loyal customers on both sides of the border. However in Canada logistic and legal problems meant that the chain to increase its price point in the market as compared to both local competition and their US counterparts. This has created a situation where the brand value has deteriorated for the customers. The chain could have positioned itself as a premium shoot-off of the familiar Target as a clear value proposition would have shaped customers expectations in a certain way. However at this point, the chain is struggling to define the market value for their consumers. The Question of Rarity: Target has tough competition in the market from well-established players like Wal-Mart Canada Corp., grocer Loblaw, Metro, and Sobeys all of whom are catering to different retail segments with similar propositions for value conscious customers (Industry Canada, 2014). At this point Target doesn’t have any major differentiating point against these firms except for their original brand image, though renewed management efforts are focusing on creating specific and innovative product lines for their Canadian customers including fashion accessories. The Question of Imitability: While Target has failed to create specific value for its customers, if developed carefully their original brand image can be used as a unique selling point. Everything from their store layouts, interior, front line service and after sales service should reflect a uniform brand idea that will enable them to create value for customers that cannot be easily copied by others. The Question of Organization: Experts and analysts agree that Target management was not ready to expand at such a massive and rapid scale into Canada. The management strategies needed to be developed after in depth market research and familiarization with customer expectations; recent press releases from the company have accepted as much ( Shaw, 2014). A more localized management and stronger operational policies may be required before the company can capitalize on their brand and the market opportunities available. SWOT Analysis A new management strategy should ideally amplify the strengths that the firm already has while countering for the weaknesses. For Target Canada, the following SWOT analysis can be a guiding point about their position in the market: Strengths: The brand already had wide recognition in Canada at the time of launch; people are familiar with it due to Target’s long term, sustained and energetic marketing platform which is one of their main assets. The holding has strong financial assets available to support further strategic plans in Canada, including lease of around 189 locations that can be used for expansion. Their recently initiated “98 per cent accuracy” and “over investing” goals (Strauss, 2014) and the ongoing deals to produce designer goods for the stores could be the turnaround strategies needed to revive business. Opportunities : Canada’s growing retail sector which  generated  $457.4 billion  in  sales in  2011 (Industry Canada, 2014) is the biggest attraction for the firm; with a growing consumer need for more, cost effective and variable products. Management can increase focus on the brand’s toys, electronics and entertainment items to make target a holiday “gifting destination.” (Strauss, 2014) as well as train and develop the sales staff to differentiate Target based on their customer centric service. Weaknesses: There are some significant weaknesses in Target’s Canadian operations; there is no current e-commerce set up, decreasing competitive venues and Supply Chain problems within the country have led to inventory losses – including shortages and forced sales. Current Marketing efforts have failed to create a satisfactory value proposition, which is suffering because Target Canada has increased prices as compared to Target US. The subsidiary had heavy financial losses in the fiscal year 2013, declining its chances of survival. Threats: Customers in Canada are already growing dissatisfied with the pricing and merchandise, problems caused due to operational difficulties. Protectionist tariffs on some foods and exclusive wholesale arrangements limit distribution and Transportation, distribution and fuel costs are higher as compared to the US market, making the supply chain more expensive. Taxation laws and wage rates vary across the country making managerial decision-making complex. Porter’s Value Chain A process analysis through Porter’s Value chain highlights the different activities that contribute to the overall performance of a company. For Target Canada, some of these Primary activities led have led to management challenges: Primary Activities Inbound logistics In the country, Target had to develop a new network of suppliers as legal requirements restricted the use of their existing network in Canada. This included forming a deal with competitor Sobeys for delivery of food and grocery items (Strauss, 2014) as well as with other designers and manufacturers for their fashion and accessories categories. However, higher operating costs in the country had to be transferred to the customers. Operations The company estimated that they would require around 27,000 employees to cater to their expanding branches (Shaw, 2013). The management has been operating on the same lines as the US branches with no significant change allowed for the different market. Outbound logistics Local outlets have suffered from inventory shortages, something that has been noticed by the customers. To counter this management has recently launched the “over-investing” and “98 per cent accuracy” goals to ensure that the stores are kept stocked with the most popular products and the shelves are always 98% full (Strauss, 2014). They are also trying to match up to the wider offerings provided in US Target stores. Marketing and sales The Canadian launch was supported by online marketing as well as TV campaigns; however, the existing following of the brand meant that wider on ground and targeted marketing activities were not conducted. Now the management focus is on pricing and sale promotions instead of brand marketing. Services While Target has always emphasized courteous and personalized customer service in its outlets, they have increased training efforts to ensure that their front line staff is well versed in sale techniques and creating customer rapport (Strauss, 2014). Excellent and dedicated service is one way Target can continue to create differentiated brand value and satisfy customers with regards to the Canadian stores’ higher price points. Significant Event Analysis Early in 2014, the company’s chief executive, Gregg W. Steinhafel resigned in part due to the severe losses faced by the Canadian subsidiary of Target. Just two weeks after this news, the company announced that they would be letting go of Tony Fisher, the president of Target Canada and assigning Mark Schindele, senior vice president for merchandising operation to the position (Harris, and  Austen, 2014). The new CEO of Target remarked that “No one is happy with our current performance; We’ve clearly disappointed our Canadians guests.” (Shaw, 2014) These major leadership changes signify that Target is well aware of the mistakes they have made in Canadian market and are looking to radically change their strategies to create a stronghold in the market. Target’s Supply Chain and HRM are the two main operational fronts being improved to provide more cohesive service for the customers. Overall, the company has been very frank about the mistakes it made in the market and the resignations were intelligently discussed as positive steps towards creating an increasingly responsive operation catering to the Canadian customers. However, only time will show if Target can survive under the new management and if their renewed focus on operations will be able to bring the firm back to profitability. References Harris, E.A., and  Austen, I., (2014). Target Fires Chief of Unit in Canada, Which Lags. New York Times, International Business. Available at: http://www.nytimes.com/2014/05/21/business/international/target-dismisses-head-of- stumbling-canadian-unit.html?_r=0 Industry Canada, (2013). Canada’s Changing Retail Market. Consumer Trends Update. Available at: https://www.ic.gc.ca/eic/site/oca- bc.nsf/vwapj/CTU2013_Q2_Canadas_Changing_Retail_Market-eng.pdf/$file/CTU- 2013_Q2_Canadas_Changing_Retail_Market-eng.pdf Shaw, H., (2014). Why Target will pull out all the stops to save face in Canada. Retail and Marketing, Financial Post, Aug 22. Available at: http://business.financialpost.com/2014/08/22/why-target-will-pull-out-all-the-stops-to- save-face-in-canada/ Shaw, H., (2013). Target Canada still plagued by price perception problems as sales fail to meet expectations. Retail and Marketing, Financial Post, Oct 30. Available at: http://business.financialpost.com/2013/10/30/target-canada-still-plagued-by-price- perception-problems-as-sales-fail-to-meet-expectations/ Strauss, M., (2014). Target Canada to experiment with overstocking in turnaround effort. TORONTO — The Globe and Mail, Oct. 22. Available at: http://www.theglobeandmail.com/report-on-business/international-business/us- business/target-canada-to-experiment-with-overstocking-in-turnaround- effort/article21245533/ Strauss, M., and  Krashinsky, S., (2013). The Target invasion: How pricing will be key to Canadian success. Mississauga and Cheektowaga, N.Y. — The Globe and Mail, Jan 19. Available at: http://www.theglobeandmail.com/globe-investor/the-target- invasion-how- pricing-will-be-key-to-canadian-success/article7550145/?page=all Read More