Hey Target, here's how you expand into Canada, courtesy of Wal-Mart - Macleans.ca

Hey Target, here’s how you expand into Canada, courtesy of Wal-Mart

From the archives: What Wal-Mart’s annual reports from the mid-1990s can tell us about Target’s ill-fated Canadian expansion


wal-mart annual report

Target Canada is an unmitigated disaster. On that point, everyone, from its customers to investors to the company’s executives, can agree. In reporting its second-quarter results this morning, Target revealed its Canadian operations lost another US$200 million, while same-store sales—a gauge of performance that measures only those locations that have been open for at least a year—fell 11.4 per cent from the same period in 2013.

There’s been no end to the analysis of what went wrong. But to understand just how truly awful Target’s performance has been here, it might help if we compare it to the Canadian expansion of that other giant U.S. big box retailer, Wal-Mart.

Drawing from Wal-Mart’s annual reports in the mid-1990s, here are four ways Wal-Mart put Target to shame.

1. Scale

In a conference call with Canadian media on Wednesday, Target chief financial officer John Mulligan declared: “We bit off way too much, too early. In retrospect, (we would) probably open five to 10 stores last year—refine the operations, refine the supply chain, the technology, get our store teams trained. But again, that’s all hindsight. We are where we are right now and we’re focused on moving forward to fix this for our guests.”

But a big, bold launch of the type undertaken by Target didn’t have to fail. After all, that was precisely how Wal-Mart entered Canada in 1994. Consider this passage from Wal-Mart’s fiscal 1994 annual report: “Our entry into Canada is proceeding smoothly. The acquisition of 122 Woolco stores from Woolworth Corp provided a quick, wide-ranging entry there, rather than building from the ground up. Moreover, within 36 hours of the announcement, members of our management team visited with the managers of every store . . . The stores are being run by Canadians, with the needs of Canadian consumers top-of-mind. The stores’ merchandise mix is being changed to reflect our price/value concept . . . We expect all 122 stores will be completed well before the holiday shopping season.”

2. Price

Wal-Mart paid US$335 million for those 122 Woolco stores in 1994.

It took Target another 17 years before it finally got around to buying Zellers, forking over US$1.8 billion for 220 locations. The plan was to convert 100 to 150 locations to Target stores by 2014. The remainder would be resold, saddling executives with the dual role of launching a retailer in a new country, while also shopping around for buyers for its excess portfolio of locations. (Target would sell 39 of those spots to its ever-expanding rival, Wal-Mart.) It wasn’t as if the thought hadn’t occurred to Target to plant its flag north of the 49th parallel. As early as the year 2000, it was widely accepted that Target would eventually absorb HBC’s struggling Zellers unit.

3. Costs

It took Target from early 2011, when it announced the Zellers deal, to March 2013 before it opened its doors and could ring up its first sale. To date, Target has racked up $1.8 billion in losses from its Canadian operations. Here is a good breakdown of the losses.

In Wal-Mart’s fiscal 1995 annual report, the retailer said its operating, selling and general and administrative expenses, as a percentage of sales, had risen just 0.2 per cent and 0.3 per cent in each of the previous two years as a result of the Canadian acquisition and launch. By Wal-Mart’s second year in Canada, it had already generated an operating profit, having doubled sales per square foot since taking over from Woolco. By Year 2, it boasted a 40 per cent share of the market.

4. Discipline

It’s taken three years for Target to admit just how flawed the Canadian expansion has been. An atrocious inventory management system left shelves empty, while Canadians were completely turned off by Target Canada’s decidedly un-Target-like prices on goods.

Things couldn’t have been more different at Wal-Mart. From the company’s 1997 annual report, here’s a first-hand account of how the retailer’s acquisition and launch unfolded, from a buyer named Agnes Seto, who’d previously worked at Woolco. “We have the most advanced computer technology as tools to do our job, whereas, before, a lot of reports were not available for us to analyze our business . . . We set specific goals for sales, inventory and gross margins.”

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Hey Target, here’s how you expand into Canada, courtesy of Wal-Mart

  1. I consider myself a savy shopper and I visit the very large Target Store on Merivale Road in Ottawa quite regularily. On practically every occasion during the day there are very few people in the store and one, or at most two checkout cashiers and no line-up. I usually walk out with very few purchases.because there are no price incentives whatsoever. That’s so obvious that I even made comments about it to your staff.
    You need to bring people into your store through exciting advertizing, loss leaders and a very careful review of your price structure against the competition in order to have them come back again & again.
    At present your prices, generally speaking, are too high.

    • Same with the Target in Place D’Orleans. I actually like going there, because it’s empty and I don’t have to stand in line or deal with crowds. That goes for the entire mall, not just Target. Really, I don’t find Target any worse than Wal-Mart. The fact that it’s nearly empty actually tips the scales in Target’s favour – or should I say, my favour, since I hate dealing with crowds.

      I was a long time Wal-Mart shopper, but no longer find their prices or their inventory to be worthy of a visit. I go to the Wal-Mart on Innes Rd maybe once per year, and don’t understand why people still cram into that place. I hate the crowds, but I hate it more when I have to fight crowds and still not find any good deals. I don’t like the crowds at Costco either, but I still get what I want at the right price there.

  2. Here’s is Wal-mart’s “trick”. Arrive in Canada 20 years before Target.

    Second, arrive at a time when the C$ was about 75 cents (as it was in 1993) not 90+ cents as now, so customers aren’t constantly comparing your prices to your American stores.

    Third, arrive at a time when Canadian retailing is an absolute mess. 20 years ago, there were almost no big box stores. And Canadian retailers didn’t have a clue how to retain customers. They’d put items in a sales flyer that would go out nationally, even though it wasn’t in stock in most cities. It was a common experience to walk into a store on the first morning of the sale and they had no stock. Canadian Tire was absolutely horrible for this.

    Not so anymore. Wal-Mart, among others, forced Canadian retailers to change the way they did business. Walking into Canadian Tire today is an entirely different experience from the early 1990s, and it was Wal-Mart who forced that change.

    In fact, Wal-mart’s and Target’s entries have more in common than not. Both took over existing retailers on their last legs (Wal-Mart took Woolco, Target took Zellers) and made them better. The difference is Wal-Mart had an entirely blank canvas to work with. They entered a retailing wasteland that doesn’t exist anymore. Of course Target had it much tougher. Target’s only real mistake was to naively promise investors that they would just roll in and earn tremendous margins like Wal-Mart did 2 decades ago.

    • Agreed on the last part. I’m certain Target rolled in thinking we were a bunch of yokels waiting with bated breath. IMO, it’s all about price and appropriate quality. The management and administrative functions are an internal responsibility, but they screwed that up as well. Got to wonder how innovative these guys are to dig themselves out of a hole only they created.