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Four Reasons Why Target Lost 2 Billion Dollars In Canada

After a year and a half in business, Target Canada is no more. The chain announced that it was closing all 133 of its Canadian stores and filing for bankruptcy protection after sustaining losses of over $2.1-billion in its first year of operation. 17,600 employees will be left out of work.

From the very start, this whole Target Canada debacle has been as much of a disaster as it possibly could have been.


Back when Target first announced their ambitious plans to enter the Canadian market (124 stores would spring up from coast-to-coast within only 10 months), Canadians were genuinely excited. Canadians - or a lot of us, at least - love Target. The cheap prices combined with a sort of sleazy-chic aesthetic made Targé a popular border-hopping shopping destination - it's basically Walmart, but with enough of a whiff of irony to make it cool. Whether you needed some socks or a dining room set or just some lip gloss, Target managed to - well, target - that enviable sweet spot in the middle of a venn diagram of "cheap" and "trendy". Plus, as something you could only get when you were shopping in the US, it just had that vague air of exoticness - oh, this scarf? You can only get it at Target, in the States.

When Target announced that they were taking over the locations of bankrupt discount department store Zellers, Canadians were over the moon. You'd think it would be hard to fuck this up, given the amount of pre-established goodwill that they had before even stepping foot north of the border. That may have been one of the initial problems: Canadians set our expectations too high, and when word spread of what a disaster Target Canada was, we instinctively, and permanently, shunned them.

So where did they go wrong? A lot of post-mortems will be written in business magazines in the coming days - after all, it's not often a company loses two billion dollars after one year in operation - but to me, here were the four big problems.

1. You can't take the Zellers out of Zellers.

Here's a Canadian business tip: if your strategy involves "Step 1: Buy all the Zellers", it's probably not a good business plan.


Zellers was a discount department store owned by the Hudson's Bay Company that had been in operation since the 1930s, with 350 outlets across Canada at its peak. Thanks to a number of factors - the introduction of Walmart to Canada and the rise of online retailing, to name a couple - Zellers went belly-up in 2011, selling most of their remaining assets - the leases to 220 of their stores, fixtures and all - to Target for $1.8 billion.

Target selected around 130 of those former Zellers outlets to transform into Targets, while the rest were either kept by Zellers or sold off, some of them becoming Walmarts.


Now, here was Target's first problem. From their head offices in the US, all they saw was a perfect opportunity to quickly open over a hundred stores in buildings that were already department stores - it was like they were handed a retail empire on a silver platter. Had they consulted with Canadians, though, the consensus might have been: "ew, Zellers?"


Zellers, you see, was trashy as hell. The stores themselves were in nondescript concrete slabs of buildings slung around strip malls in the suburbs. Cheap aluminum shelves, rickety old carts, stores that felt like dimly-lit warehouses in the middle of dumpy 1970s shopping centres: this is what Target inherited for their empire.

The whole appeal of Target in the US, at least for Canadian shoppers, was that the stores seemed to be surrounded by this hazy aura of coolness - a bit seedy, sure, but at least they usually had bright, modern downtown flagship stores in major cities. There was no sexiness factor with the stores Target Canada inherited from Zellers. Most were scattered off of minor roads surrounded by middle-class suburbs and industrial parks. Immediately, the cool factor was gone. No hip university kids were semi-ironically going to Targé Canada to shop for cheap dorm room furnishings - in fact, between their far-flung locations and lackluster selection, barely anyone had any reason to go to a Target in Canada.


You can put a Target in a Zellers, but you can't take the Zellers out of the Zellers.

2. For a discount store, it wasn't even cheap.

Target's brand identity thrives on being cheap and cool. The problem was, Target Canada was neither.


I'm sure generations of business students will study Target Canada's failing as a fundamental matter of brand dissonance, but really, maybe it was just an operational disaster from the start. For whatever reason - possibly trying to recoup costs off of their $1.8 billion purchase of Zellers, possibly a failure to properly source or transport merchandise, possibly not taking into account Canada's higher minimum wage costs - Target could never compete on price.

Practically everything at Target Canada was more expensive than it was in American stores. A lot of the beloved, cheap products offered in the States, like their cheap-chic home decor and cosmetic products, never even made it onto Canadian shelves. The selection at Target Canada was basically the same as any old busted-ass Walmart, just slightly more expensive. Expect Less, Pay More.


3. Internally, they were a bureaucratic disaster.

Much has been made of the vaunted Target Experience, the overarching system of merchandise management, store operations and employee training that turned them into a multi-billion dollar cost-cutting empire. (At least part of that cost-cutting is due in no small part to their notorious union-busting.)


Gawker ran a letter from a Target Canada manager last year highlighting how the company operates internally like some sort of Kafkaesque fever dream, drowning under lawyers of abbreviations and bureaucratic systems that were all brought in under the American formula - even as store managers internally begged for some semblance of sanity.


Shipping was a mess - products arrived late, or sometimes never arrived at all. On one day, there might be no laundry detergent. That meant bare shelves, which gave Targets the impression of walking into a Soviet supermarket during a supply shortage. Floor managers would try to make shelves look less bare, say by filling the laundry detergent shelf with dish soap - only for narc-like roving supervisors brought in from the American head office to chew them out for putting stock on the wrong shelves, thus disturbing the precious Target Experience inventory coding.

On top of that, they ignored what was proven to work in Canadian retail, sticking with what worked for them in the US. Executives brought in from the head office trained employees to follow customers around, asking them if they needed assistance. That kind of hands-on approach works well with American customers, but studies show that Canadians prefer being left alone while they're shopping - having employees watching them around every corner makes them feel like they're being suspected of shoplifting. The whole union-busting aspect, plus the inventory-starved shelves, are another couple things that can leave Canadians with a sour first impression.


4. "You come at the King, you best not miss."

Walmart has been in Canada since 1994. They are very good at what they do, in a way that only an evil empire can be. First-mover advantage can't be underestimates in retail, and when you're trying to open 130 stores in your first year competing directly against the retail might of Walmart, you should expect that they'll fight back.


Walmart Canada responded to Target Canada by aggressively undercutting them, knowing that they could afford the losses, while Target - still reeling from heavy losses in their US operations and a costly data breach that cost them hundreds of millions - would eventually lose the war of attrition.

As the ultimate act of war, Walmart Canada started offering free shipping on all online purchases last summer (with no minimum spending amount, either - I could get a can of tuna shipped to me from, and I wouldn't pay a dime for shipping.) Target Canada, for their part, never even got an online shopping site off the ground.


Discount stores like Walmart weren't the only challengers. Local chains Canadian Tire, Home Hardware and Rona already have a major piece of the hardware, appliance and home furnishing market. The Bay and Sears Canada have major presences in the department store segment. Future Shop and Best Buy have a stranglehold on electronics. Groceries, meanwhile, are heavily dominated by Loblaw's, Sobey's and Metro. American companies often forget that Canada is a mature retail market that tends to support long-established chains over new ones - just because you build it doesn't mean that they'll come.

Target aren't the first ones to make this mistake. When Krispy Kreme first entered the Canadian market in 2000, it was under very similar circumstances to Target - a hyped product that Canadians loved buying when they were in the US was finally coming to Canada. Krispy Kreme entered Canada aggressively, opening 18 stores in their initial push and setting sales records in all of them. People were lined up around the block. Selling donuts to Canadians was like selling water in a desert.


So what happened to Krispy Kreme? Tim Hortons happened. Tim's took on their new challengers head-on, and eventually, Canadians went back to their old familiar, cheaper donuts and coffee at Tim's. Today, Krispy Kreme barely exists in Canada, with only a couple stores left still clinging for survival.

And so here we are. Target Canada is no more. And all we got out of their presence here was 17,600 unemployed Canadians, and a future business school case study. Thanks, Target.

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