Target Canada came to a lonely end.
IT was a spectacular disaster, a multibillion-dollar failure so abject that retailers are looking at it for what not to do.
As senior staff reveal just what went wrong, companies hoping to conquer Australia are looking at Target Canada to see what makes a global brand fall on its face.
The US chain — which is unconnected to the Australian one, although they share similar branding — expected to settle in to its neighbouring country with ease. Instead, customers quickly deserted the depressing stores with their empty shelves, poor service and broken technology.
Target Canada filed for bankruptcy protection after burning through $7 billion, muddying the brand’s reputation and putting around 17,600 people out of work.
So why did it collapse and, with international retail giants knocking down Australia’s door, how can other brands avoid getting burnt?
LOCATION, LOCATION, LOCATION
Target went all in, buying all of Canadian discount chain Zellers’ 124 leases for $1.8 billion in 2011. But the local ultra-low cost retailer hadn’t necessarily courted the same customers, so many of the locations were far from ideal for Target.
Even the Zellers CEO said it was “pretty surprising” Target paid so much for the stores, Canadian Business reported.
Once it had paid, the retailer was locked in to opening all locations as quickly as possible to avoid paying rent on unused buildings. The firm planned to do so within two years. There was no time for mistakes.
“Some say it was a poor fit in terms of store locations and target market,” Retail Doctor Brian Walker told news.com.au. “Target, Masters and Dick Smith to some degree all attempted very ambitious expansions. They’re all in the mid to low market where scale and location are big drivers of business. You have to get a certain number of sites up for presence and impact — it’s a double-edged sword.”
The company went into liquidation after a string of mistakes, which global retailers are using as a guide to what not to do.Source:AAP
A TOUCH OF HUBRIS
What Target didn’t do was purchase records from Zellers to gauge customer spending habits. “There was an assumption made that because Target was so well-known, Canadians would flock there,” said Mr Walker. “They didn’t do their market research. They ignored the history, and assumed the brand was so popular or well-known it would win the day.
“When you look at Woolworths with Masters, or other countries, there tends to be a bit of hubris.”
“The company had never really failed before,” a former employee who worked in the US and Canada told Canadian Business.
Instead of drawing on its experience in a measured fashion, the company set virtually impossible goals, tasking a young and inexperienced team with building three distribution centres from scratch in two years, using software never tried in the US and turning a profit in a year. It was to be their undoing.
LOGISTICAL NIGHTMARE
The new supply chain software was a total disaster. Employees and suppliers didn’t know how to use it, and the US had no experience with it, either. Inventory records ended up riddled with errors, leaving shelves empty, orders unfilled and distribution centres backed up with excess product.
To add to Target’s woes, the point-of-sale technology was glitchy, so checkouts didn’t work, items didn’t scan and payments didn’t get processed. Even after a dedicated “data week” in which employees tried to fix the errors, they never got on top of the problem.
Drowning under the weight of technical difficulties, they failed on other counts too. Their marketing was too low-key on opening stores, and their pricing model was slow to become as aggressive as Zellers’ had been.
“They couldn’t translate their offer to Canada,” Pippa Kulmar from Retail Oasis told news.com.au. “On top of that their offer is at a point where it needs to be reinvented — double whammy. They choose to focus on expansion, not on the customer.”
Customers turned against Target, sharing grievances at the lack of stock and miserable shopping experience on social media. Financial commentators and the mainstream media went on the attack. It was over almost before it began.
It was a disaster comparable to that of Masters, and firms are taking it as a warning against having too much confidence. Picture Patria JannidesSource:News Corp Australia
WHO’S NEXT?
So who would stake their reputation and finances on such a difficult venture? The answer is many international and emerging brands, because if it goes right, it can be one of the most lucrative business plans there is.
Mr Walker believes there are steps companies can take to ensure they don’t make the very public, embarrassing errors to which the likes of Masters and Target have fallen victim.
“The board, the executives seemed to think they had the answers, they had what customers wanted ... but the model has to be right, starting with customers and doing it in a sequential way, step by step.
“They should have opened just a few stores and made tweaks,” he said. “It’s tough. A lot of businesses are coming in under very competitive conditions.”
According to Deloitte, only 15 per cent of the world’s top 200 retailers are operating in Australia, so there’s plenty of room for new arrivals. Aldi, Costco, Zara Home, Topshop and Sephora are expanding and there’s talk of supermarket chain Lidl opening. South African chain Mr Price just launched in Australia.
Mr Walker expects new entrants in the food and fashion sectors. “The Australian economy is comparatively good, cash returns reasonably low, there’s a great opportunity,” he said. “With over 1400 retail centres, predominantly on the coast, it’s a microcosm, very concentrated, with a lot of choice. We’re pretty discerning.
“The Australian customer loves to travel, we’re tech savvy people. We are a nation of shoppers.”
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