Nordstrom take note, here's what Target's Canadian failure can teach you
Andrea Janus, CTVNews.ca
Published Thursday, January 15, 2015 1:48PM EST
Last Updated Thursday, January 15, 2015 5:44PM EST
Canada’s retail landscape remains “fairly strong” despite Target’s announcement it is shutting down operations here, experts say, and the chain’s demise in this country should serve as a warning to other brands planning to expand here to be prepared, and know thy customer.
After two years on the Canadian retail scene, Target announced Thursday it is closing all 133 of its stores across the country, throwing more than 17,000 people out of work.
Retail analysts say the company made several mistakes that other U.S. retailers with Canadian expansion plans must avoid.
Retail expert Jason Dubroy of ShopperDDB says Target made three major errors: it did not understand the needs and expectations of the Canadian customer; it opened too many stores at once, causing supply chain problems that left store shelves bare; and it raised expectations with a massive pre-launch public relations campaign that was not matched by customers’ in-store experiences.
“It really is about making sure that you understand what you’re getting into, making sure that the properties, the leases and the locations are exactly where you want them and are going to drive the amount of traffic that you’re going to need to be profitable,” Dubroy said of the main lessons for U.S. retailers planning Canadian expansions.
“The second part is making sure that the pricing is bang on. We live in one of the most competitive retail landscapes in the world, and if you don’t have that part figured out then you’re really not going to get out of the gate.”
Analysts are watching luxury American retailer Nordstrom very closely as it expands north on a much slower, smaller scale than Target.
The first Nordstrom location opened in Calgary last year, and a second store is slated to open in Ottawa next March. A Vancouver location is scheduled to open in September, and three Toronto locations are scheduled for the fall of 2016 and spring 2017.
A Nordstrom spokesperson would not comment on the company’s fate Thursday. However, John Bailey said the company plans “to stay focused on serving customers one at a time and getting to know and understand our customers in each city in which we are opening.
“We are very happy with our business in Calgary, but recognize we have a lot to learn as we open more stores in Canada.”
Nordstrom’s limited expansion plan suggests the company “has learned its lesson quickly,” says McMaster University marketing professor Mandeep Malik.
Target may have felt pressured to open so many stores at once, after it got a “great deal” buying up the real estate that once belonged to Zellers.
“But that did not mean that they needed to stretch themselves too thin and act in haste without understanding the taste and preferences and values that Canadians desired,” Malik told CTV News Channel.
Target failed to deliver on its brand promises to expect more and pay less. “Neither happened,” he said.
Target had a savvy Canadian customer when it arrived here, Malik said, with thousands travelling across the border each year to shop in its U.S. stores.
“They came in with a Canadian who was well aware, who knew what to expect given their shopping experience buying at Target in the U.S. and that’s where they failed,” Malik said.
“When you enter a new market and you’re looking at creating a competitive advantage, you need to be prepared for it from day one, and Target was not.”
Another U.S. luxury brand, Saks Fifth Avenue, is also expanding into Canada, with two Toronto stores slated to open next year. Hudson’s Bay Co. bought Saks in 2013.
Retail analyst Doug Stephens of Retail Prophet says that because many Canadians have shopped at Nordstrom and Saks stores, they will have high expectations for service, quality and even the look of the stores.
"The Bay has a lot at stake here ... They can't afford to let the Saks Fifth Avenue customer down,” Stephens told The Canadian Press. “If they do they'll lose them forever.”
Meanwhile, Target’s closing will leave empty stores across the country, and 17,000 workers without jobs.
Michael LeBlanc of the Retail Council of Canada said the departure “opens up a significant amount of retail landscape that is hard to come by.”
He expects that a mix of Canadian and international retailers will snap up that space, meaning that over the medium- and long-term, the jobs lost at Target could be replaced, he said.