Here’s why Target failed in Canada

WATCH: The departure of Target and Sony represent more blows for a changing retail landscape in Canada. Mike Le Couteur reports.

Were Canadians just too fickle to embrace the big red bull’s-eye? Or did we fail to buy into the U.S. store’s “brand”? No on both counts.

Canadians were overwhelmingly receptive to Target’s arrival, having spent years crossing the border to snap up affordable fashion and household products from U.S. Target locations.

Our affinity for the chic-for-cheap department store in the United States was a chief consideration in Target’s 2011 decision to enter Canada—there was little required effort or money to be spent introducing themselves to us.

Experts say Target Canada’s misfortunes – capped with the abrupt decision Thursday to pack up and leave — stem from missteps from within its own operations. In short, Target blew it.

“I think they felt they could just put a Target logo on stores and shoppers would come,” said Nadir Hirji, executive vice president of Jackman Reinvents, a consultancy.

Huge expectations

“Canadians knew Target and there were pretty huge expectations,” Hirji said. “And the reality was completely different.”

Stylishly renovated stores couldn’t mask a dysfunctional supply chain and in-store merchandise management system that left shelves bare and consumers deeply disappointed.

MORE: Target Canada’s biggest headache? Bare store shelves

Insufficient stocking was Target Canada’s single biggest headache. But it wasn’t its only.

“In our opinion, those issues include a badly functioning distribution system, chronic out-of-stocks, mispricing, weak promotional efforts, and a paucity of Canadian products, tactics or management,” CIBC analyst Perry Caicco said in a recent research report.

Higher prices

Setting prices at noticeably higher levels on certain products and categories compared to what Canadians were accustomed to at U.S. locations was a grave misjudgment. Despite the fact consumers on this side of the border routinely pay more for goods here compared to what U.S. shoppers pay for the same thing, Canadians were repulsed by Target’s pricing.

Combined with supply chain woes, Target quickly exhausted all that goodwill generated with Canadians before it arrived. “When expectations aren’t met it’s very hard to get shoppers to come back,” Hirji said.

Rival response

Target also ran into a wall of competitors in Canada that had been sharpening their game an anticipation of Target’s arrival in March 2013. “Target’s competitors also did a brilliant defensive job. Walmart, Loblaw, Shoppers Drug Mart, Canadian Tire, and a host of general merchandise retailers focused on improving their store operations, offered better pricing and brought in new ranges,” Stewart Samuel, a retail analyst at supermarket researcher IGD said.

Still, a glowing reputation preceded Target. Convincing shoppers to swap a trip to Walmart or any of the other names above for one to Target shouldn’t have been that difficult, retail industry experts suggest. The pre-launch hype could have translated into sustained sales if Target had executed better.

Out of the gate

Launching out of the gate with dozens of stores that scaled up quickly to 133 locations in 2014 was a tall order, even for Target, experts say.

Hiring 17,600 staff in less than two years – while simultaneously building out a supply chain from the ground up—ultimately proved far more difficult than the retailer and others realized.

And shoppers voted with their feet.

“The results of Target Canada have been well below expectations right out of the gate, and the business is operating at sales levels about half of what we originally expected,” CIBC’s Caicco said.

Target said Thursday the Canadian chain wouldn’t become profitable until at least 2021. That dire outlook meant the better business decision was for Target to walk as well.

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