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7 reasons Target struggled to be awesome in Canada

ABOVE: Marketing expert Tony Chapman shares his views on the failure of Target in Canada.

TORONTO — Target’s decision to bail out of Canada after only two years has sparked a flurry of derision by consumers and gloating by retail experts.

The retailer announced Thursday it will close all 133 of its Canadian stores within the next five months, putting 17,600 people out of work.

The consensus seems to be Canadian consumers abandoned Target because it failed to offer more selection than at its U.S. stores and at the same low prices.

Indeed, Target Corp. did not do all of its homework before entering Canada and underestimated the power of its brand north of the border. Since other U.S. chains have found success north of the border, it can be said Target has only itself to blame for its failure to hit a bullseye in Canada.

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But to be fair, Canadian consumers should understand some of the challenges Target faced.

The U.S. is currently ranked No. 7 on the World Bank’s “Ease of Doing Business” index, which measures how conducive a country’s regulatory environment is to operating a business. Canada is well behind, at No. 16.

Simply put, there are big differences between operating a retail chain in the U.S. and in Canada.

Here are 7 reasons Target Canada struggled to be as awesome — and as popular — as it is south of the border:

1. Canada is a tiny consumer market when compared to the U.S.

Canada has a population of 36 million spread out on a massive piece of land. The U.S. has 320 million people. Do the math. Target has massive buying power in the U.S. because it has a massive consumer base shopping at hundreds of stores.

2. The cost of shipping goods across Canada is significantly higher.

Most of Target’s goods arrive via west coast ports. Let’s take a container of goods from China arriving in Los Angeles. Those goods can be distributed to 248 Target stores in California alone within a day’s drive. The state has nearly 39 million people living in an area of 164,000 square kilometres — versus 36 million people spread out over Canada’s nearly 10 million square kilometres.

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By comparison, the goods in a container arriving in the port of Vancouver could be delivered to 19 Target stores in B.C., where there is a population of 4.4 million.

Or, those goods can be transported more than 5,500 kilometres to 10 Target stores in Canada’s four eastern provinces, where the population is 2.3 million. Shipping from Los Angeles to the five most northern states on the U.S. east coast — where there are 33 million people — is far more cost effective.

Shipping those goods from Los Angeles to Florida — a journey of more than 4,000 kilometres — is also more profitable because there are nearly 20 million people served by 123 Target stores.

The enormous costs associated with shipping goods to a handful of stores across Canada are passed on to consumers.

3. The cost of hiring, keeping (and firing) people in Canada is higher.

Minimum wages in the U.S. vary from the federally-mandated minimum of $7.25 to $9.25 (in Oregon). In Canada, minimum wages vary from $10.20 to $11.00.

Employer-paid taxes are also higher in Canada than in most American states.

Pregnant? In the U.S., Target only has to provide up to 12 weeks of unpaid maternity leave to employees while in Canada the retailer must provide employees with between 17 and 52 weeks of leave — including up to 15 weeks of paid leave.

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In Canada, the process for terminating employees favours workers (i.e. minimum notice or pay in lieu of notice). U.S. employers have far fewer regulations and can, in general, terminate employees at will.

“Through American eyes, Canada has a strong employee or labour bias that is less evident in the United States,” reported law firm McMillan LLP.

No surprise, then, that Target stores in Canada typically seemed under-staffed.

4. It costs more to label and package goods in Canada.

Canada has unique packaging laws — including a requirement that all goods are labelled in English and French.

For example, Target can order 1 million cans of soup from Acme Soup Company to sell at its stores in the U.S. and Canada — but the cans it ships to 133 Canadians stores must have different labels.

The additional costs are passed on to consumers.

5. The Canadian dollar is typically worth less than the U.S. dollar.

Target is buying goods from all over the world in U.S. currency. No big deal when it turns around and sells these goods in U.S. currency — but in Canada it’s selling these goods in Canadian currency, which is currently worth about 20 per cent less.

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6. Canadian consumers have markedly different shopping habits than Americans.

Most of Canada is cold for several months each year so a lot of Canadians stay home and shop online. It’s no surprise that the aisles of Target stores in Toronto and Montreal are virtually deserted in January and February. Meanwhile in Florida, for example, consumers can slip into their sandals and shop at Target all year long.

7. A Target store costs more in Canada

The supply of desirable real estate is significantly smaller in Canada and the cost is significantly higher per square foot. Turning these spaces into Target stores also costs more in Canada, where labour costs are higher (see no. 3), not to mention the costs of building supplies and fixtures.

The company also had to establish a separate Canadian corporation and incur the expenses that come with following a whole different set of laws and regulations, different supply chains and different tariffs on imported goods.

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