Global Retail: Target's Canada Case

Introduction

Conduction of business internationally, especially in the field of retail requires extensive research of the populations’ way of life. Failure to understand a people’s lifestyle as well as their social habits is likely to adversely cost a business especially a start up in retail business. For those seeking business dissertation help, a thorough understanding of these factors is crucial. However a wide range of other factors make up an international business strategy and determine its potential for success. This essay aims to highlight some of these factors while looking at a case study of Target corporations’ failure in Canada.

Target Corporation History

Target Corporation is the second largest department store retailer in the United States behind Wall mart which presents its major competitions across the years. The company which was originally named GoodFellow dry Goods at its founding in 1902 has changed its name twice to Dayton Dry goods company in the subsequent year 1903 and afterwards in 2000 when it was renamed Target Corporation (Target.com, 2018). Target Corporation is a general merchandise retailer company that sells its products through its physical stores as well as its online and digital channels. Reuters (2018) highlights that the companies general merchandise stores offers an assortment of edited foods including perishables, dry groceries, dairy and frozen items. The company also owns a wide range of brands such as Sutton and Dodge, Art class, Boots and Barkley, Archer Farm and many others. Given these much assets the company is one of the most diverse and successful department store retailers in the United States.

Target Corporation is an international company with head quarters in the United States and India. Despite its presence and staff within India, it is yet to open stores within India and only operates on the digital channels (Target.com, 2018). However as highlighted by Bloomberg (2018), the company operates over 1800 stores in 49 states within the United States and has over 300,000 employees referred to as team members within the entire country. It also hires up to 16,000 team members in its 37 distribution centers located in 22 states within the United States. Despite the dominance in the United States Market however the company has had difficulties in being able to enter the international market successful thereby receiving an edge from their immediate competitors, Wall mart which already operates in up to 28 countries across the world with approximately 11, 700 retail stores.

Target Corporation also has the second largest market share within the United States as well as globally, with a 2.4% as highlighted by Mirzayez (2018). This however being way below Wall Marts market of 11.4% highlights the vast potential Target possesses in employing international business strategies that would effectively increase their market share. However in consideration of the turnover rates of the inventory, Assets and receivable turnover, Hicks (2015) highlights the performance of Target to be quite admirable with a difference of just 1 day when turnover ratio is converted to number of days. The table highlights some of the rates.

Stoffell (2016) further highlights that Target Corporation is at present the most profitable retailer company above its major competitor Wall Mart in both gross profit margin and Net Profit margin. It has a 29.67 Gross profit margin against 24.85 of Wall mart and 24.16 of the other companies within the sector. This highlights a huge sale and a potential for rapid market growth should it successfully indulge into the international market. However the companies’ first attempt at delving into the international market was not very successful based on a range of factors including location, inadequacies, late delivery of products and thus empty store shelves as well as the aggressive pricing techniques applied by their major competitor, wall mart.

Targets Expansion in Canada

Targets expansion in Canada came as the maiden move at international expansion and among the opportunities target was looking up to secure included a ready international market that would substantially boost its sales and growth within the recent years of its indulgence. According to Peterson (2014) Target landed a deal to buy store leases for discount chain company Zellers which guaranteed 124 store within the first year providing an opportunity for exponential growth in the first year and an establishment of a strong international market for the company.

The company adopted an ambitious strategy of opening multiple stores so as to spread their distribution within the entire country of Canada and rapidly improve their popularity and performance in the international market. Patruno (2016) highlights that the company adopted a localization strategy that ensured geographic proximity to the stores for individuals ease of shopping, language as well as cultural similarity and market familiarity with the Target brand to ensure its pitch in the Canadian market however these were not enough to stage a successful expansion.

The company went ahead to utilize the Acquisition mood by buying Zeller Company stores which were already spread all across the country and could provide ready market and visibility all across the country. However the company’s failure to align their expansion strategy to their global strategy was the downfall and main factor leading to its failure and closure (Dahiloff, 2015).among other factors cited for their failure includes the over ambitious launch of its stores which led to empty shelves, rapid growth, inadequate logistics and failure of the company in meeting consumer expectations. The SWOT and Porters 5 force analysis developed highlights some of the major strengths, weaknesses, opportunities and threats exhibited by Target in their entry strategy to the Canadian market:

SWOT Analysis

Strengths

Given the limited array of international retail stores within Canada, Target Company presented a competition to Wall mart and an alternative for consumer retail shopping that indicated strength to the company’s entry strategy. Chodon (2011) further highlights the companies array of stylish products, with affordable prices which presented the customers with a range of products bound to attract more customers to their new stores.

Weaknesses

Through its entry into an international market, Target Corp risk of high cost operations provided a major risk factor especially considering the development of low price sales that would limit their revenue and sales and therefore make the return on Investment low within the firs years. In addition to this, another weakness experienced in the strategy as highlighted by La Monica (2017), included hiring a large number of employees who would require extensive training in terms of cost as well as time investment developing a weakness in the company’s entry strategy.

Opportunities

Given the company’s debut involvement in the international market a wide range of opportunities were within their reach. Some of these as highlighted by Chodon (2011) include opening more than 100 departmental stores all across the country which would subsequently generate employment to individuals within these locations. The potential of growth was immense, considering the 70% awareness of the brand among the Canadian population. The market being expectant of their brands assured the company of exponential growth opportunities in Canada. Further the current economic status within Canada highlighted the desire for the population to shift to affordable and stylish products that Target Corp was capable and willing to offer thereby providing a solution to a market gap.

The company also enjoyed opportunities such as developing partnerships with Canadian companies to enable the easier distribution of their products and rapidly improve its visibility within Canada within their first year of entry. One such company includes Sobeys. Target.com (2018) further highlights that tens of thousands of Canadians already were in possession of Target loyalty cards which guaranteed a rapid pick up of the market as more new members were expected to join due to the 5% discount on purchases.

Threats

The major threat to the company’s expansion to Canada included Wall Mart, owning to their similarity in products as well as operations. Developing differentiated brands of their products to provide the customer with a wider variety included the strategy taken up by Target to secure a market within Canada. Another threat that Target faced according to Chodon (2011) during their market expansion strategy in Canada included being able to get the right products for majority of Canadians, as well as the minority groups within the country for the same quality and affordability, this was due to the cultural difference that exist between the United States and Canada.

Porters 5 forces Analysis

Threat of New Entrants

The general merchandise retail industry is a widespread industry with both small and big firms. While the entry of startups and small retail firms in both the US ecoomy as well as Canada economy may pose a threat to most retail companies, Target corporation represents one of the bigger companies in the industry globally, ranked second after Wall Mart. As such new companies coming into the market do not pose that much of a threat to the company. As highlighted by Pratap (2017) therefore the threat represented by new entrants to Target Corporation is moderate.

Bargaining Power of Buyers

Consumers often want to purchase the best possible product at the least possible price as such their bargaining power can be effectively limited by offering a range of commodities at different prices to offer the various options. Target Corporation according to FernFort (2018) controls its buyers bargaining power by developing a wide range of innovative new products, developing a wide customer base which effects a positive growth of the company’s reputation thereby lowering the strength of the buyers bargaining power.

Bargaining Power of Supplier

Given the large size of Retail Company already developed by Target Corporation, the company has a wide network of suppliers none of which are big enough to possess the bargaining power over Target. In addition, having a network of many suppliers also reduces the pressure on target as they can easily switch from one supplier to the other. The suppliers chosen have therefore the obligation to follow the rules set by Target and adhere to its code of conduct. In this way Target is able to control the bargaining power of its suppliers (Pratap, 2017).

Threat of Substitutes

The threat of substitutes in general merchandise is quite high in general as the products sold are easily substituted and can be supplied by different companies other than target. However given the only competition for Target Corporation is Wall Mart the threat represented by any substitutes supplied by Wall Mart is greatly diminished. In addition electronic commerce websites which are also on the rise offer substitutes to products sold by Target corporation and may greatly increase the threat posed y these substitutes. Pratap (2017) highlights however that target alienate these threats through offering highly differentiated products at lower prices.

Level of Competitive Rivalry

The level of competitive rivalry within the retail industry is quite high due to the several large players and a magnitude of small players who also mounts up the competition. In addition the resent development of electronic commerce sites have actively increased the competition and widened it on a global scale. FernFort (2018) highlights among the ways Target manages competitive rivalry to include building sustainable differentiation to maintain the companies name and brand as well as collaborating with other competitors to increase market size and minimize level of competition.

Cultural Differences

The United States and Canada do not have those much cultural differences when national values and cultures are compared. However through incorporation of Hofstede’s cultural dimension of individualism vs. collectivism, some individual character traits and social habits and lifestyles present a difference within the two countries and highlight a possible explanation for Targets Failure in the Canada. Given the company’s potential high class status in the United States, the location of the store bought from Zellers did not match the company’s social status within Canada and effectively diminished its social status thereby limiting the company’s success in Canada (Wahba, 2015). In addition to these the cultural and social difference led to the accentuation of the process of their products being high within Canada as compared to the United States thereby limiting the achievement of their popularity within the country.

Challenges Faced by Target Canada

Target despite being quite successful in the United States failed to successfully develop retail stores in Canada in their first attempt at international expansion. Despite developing a reasonable strategy with an overambitious market entry strategy of opening more than one hundred stores in Canada within the first year, the company faced a variety of challenges that eventually led to their failure and closure less than two years after its expansion attempt. Some of these challenges include:

One of the key challenge that the company faced in being able to establish itself in Canada, includes consumer satisfaction. According to report highlighted by Strauss (2014), only 18% of the customers within that year were satisfied with the service and products provided by Target Corporation in Canada. This number dipping from 27% in the previous year, despite the company changing the manager in Canada. However this dissatisfaction by consumers was also caused by a number of problems faced by the company at the time which provided massive challenges such as empty shelves, high prices, Tight Competition from Wall Mart as well as less ideal locations.

Location

The stores owed by Zellers and leased by Target Corporation were majorly located in rundown centers that were hard to access (Peterson, 2015). This provided a challenge for the customers to reach and a subsequent challenge for the company’s ability to attract customers into their stores. Wahba (2015) further clarifies that most of the Zeller stores were dumpy, poorly configured and required a huge investment to be properly converted to its trademark red and white big box layout. Further these stores were in areas not frequented by the middle class customers who made up majority of the companies desired customers and therefore provided a challenge to the company in being able to match the economic social status within the country.

Empty Shelves

The company’s overambitious approach of opening up to 124 stores within a year led to a havoc in the department of inventory. While securing the stores was a plus move in the ability of distributing their products far and wide within Canada, early stock outs provided a challenge in inventory control and therefore led to disappointed customers which further limited the company’s success within Canada (Northrup, 2018).

Aggressive Wall Mart Competition and Pricing

Wall Mart having already established itself within the Canadian market and producing the same products as the ones expected form Target Corporation presented a tight competition which presented a challenge for the entry of Target corp. The absence of exciting merchandise to differentiate it from Wall Mart presented a challenge in being able to secure Canadian market (Dahloff, 2015). Targets lack of developing sharp enough prices, created a perception that their products were much more expensive than necessary leading to the loss of customers. Wahba (2015) highlights that at the same time when the Targets gross profit margin was in the lowest Wall Mart engaged them in price wars which further developed a challenge for Target and further contributed to its failure.

E-Commerce

Developing their expansion plan at a time when technological development was advancing and more customers are shying away from physical stores to online shopping provided another challenge to the successful expansion of Target Corp into Canada. With the development of online shopping website such as Amazon which is currently the most valuable company within the market, most of the populations in the current generation especially in developed countries are shifting to online shopping due to the conveniences of shopping at home and receiving delivery of their goods. These electronic commerce sites come with a wide range of advantages such as convenience shopping, a wide variety to chose from before making up one’s mind on what to purchase as well as the comfort of home delivery (Banjo, 2015). This has provided a huge challenge not only to Target Corporations expansion but also to other physical general merchandise retail stores which are increasingly losing their customers due to preference of online shopping.

Learning Points

Quite a wide range of learning points can be taken from the failure of Target Corporation in Canada including: A business strategy that is reasonably ambitious is crucial to the effective startup in a different location or country. Consideration of the immediate competition and means with which to minimize it and/or compete in equal measure is a necessary prerequisite in the development of an expansion plan in foreign territories. Another learning point is in the conduction of research and reconnaissance regarding socio-cultural attitudes and practices of one’s target customer to ensure their requirements and needs are effectively satisfied. Developing a business strategy is best on a low scale that is much easier to handle and provides immense opportunity for growth. Another earning point that can be highlighted due to Target Corps failure in Canada is indulgence in planning and adequate training of employees to adequate standards so they are capable of effectively managing a new business and overseeing its growth and development. Application of effective technology is also essential in the smooth development of a business plan as well as ensuring it is successfully managed.

Conclusion

Despite its physical operations only within the United States, Target Corporation is a highly successful general merchandise company that makes significant gross as well as net profits annually and comes second after the leading general merchandise store Wall Mart which operates in more than 20 countries worldwide. Despite their failure in the attempted expansion in Canada owning to consumer dissatisfaction caused by a range of challenges such as overburdening inventory control which led to empty shelves in their stores, poor location of the stores themselves as well as the high competition presented by Wall Mart, the company developed a working strategy which they can successfully with limited and additional research apply in expansion to other international markets. Alteration of their expansion strategies further affords them time for preparation and a gradual growth that eventually will usher their entry into the international market and subsequently promote their growth and development as well as the improvement of their global market share.