Target faces growing pains in Canada

  • Article by: THOMAS LEE , Star Tribune
  • Updated: May 29, 2013 - 8:06 AM

So far, Target’s expansion into Canada has been a big hit. But some analysts and shoppers complain about selection and price.

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Claudia Angarita and Mercedes Marenco said they were happy to stay in Canada as they shopped at a Target in Calgary, Alberta.

Photo: Christina Ryan, Special to the Star Tribune

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Target Corp. is learning that its ubiquitous “Expect More. Pay Less” motto doesn’t always translate as smoothly in Canada as it does in the United States.

Since March, the retailer has rolled out 48 stores in several major Canadian markets — the company’s first big push into a foreign land. And while many shoppers have embraced Target in cities such as Vancouver and Toronto, others have encountered bare shelves or grumbled about prices that weren’t as low as they had expected.

The volume of shoppers has been promising, but Target executives acknowledge that they underestimated the initial demand, particularly with three stores in the Toronto area.

“That has been the biggest challenge so far,” said John Morioka, Target Canada’s senior vice resident of merchandising. “There has been no accurate history to plan for our sales.”

The sweep into Canada is Target’s largest investment as it moves to become a global retail force. The company with deep Minnesota roots is opening stores at incredible speed — 124 are expected to open across Canada within the first year.

That ambitious time frame underscores the biggest challenge for a company that normally introduces about 20 U.S. stores a year. The Minneapolis-based retailer has never operated stores beyond the United States, and even a close neighbor such as Canada poses a formidable challenge for any retailer, analysts say.

“Given the size and excitement surrounding this launch, it’s not fair to expect Target to have everything run like clockwork,” said Amy Koo, an analyst with Kantar retail consulting firm in Boston.

Unlike Wal-Mart, which is lauded for its prowess to deliver products across the globe, Target has never been known for its inventory skills, analysts say, pointing to Target’s failure to anticipate strong demand for its Missoni fashion line in 2011 and, in contrast, the relatively weak interest in its Neiman Marcus collection last year.

The distinction was on display during Target’s “soft launch” in Toronto in March, when shoppers complained that stores ran out of key staples such as milk and clothing. Reports of empty shelves also cropped up during recent openings in British Columbia and Alberta.

Still, those struggles demonstrate one of Target’s most-lauded strengths — the ability to create consumer buzz through savvy marketing and merchandising. Exclusive clothing collections from Kate Young and Roots have been big hits in Canada, Target officials say, as has food sold under the retailer’s Archer Farms private-label brand.

Target’s Jason Wu pop-up store and Neighbour television campaign also have been well-received.

“There has been a tremendous amount of hype around the launch, much of it perpetuated by Target itself,” said Doug Stephens, a Toronto-based retail consultant and author.

But when the new stores don’t quite match the hype, it “takes the edge off” the retailer’s shine, Stephens said, especially among consumers unfamiliar with the brand.

Despite such risks, Wall Street expects Target Canada to be a successful venture. Last week, Target reported that the 24 stores it opened in March generated sales of $86 million in two months of operation and will generate profits after just one year.

Those results shouldn’t be a surprise, analysts say — Target didn’t become the No. 2 U. S. retailer because it couldn’t adapt to new challenges.

“They will correct [Canada] over time,” said Brian Yarbrough, a retail analyst with Edward Jones Investments. “Over the long term, they should be able to do pretty well.”

Bold predictions

Target’s challenge in Canada springs from its own bold predictions. The company has promised investors it will generate $100 billion in sales by 2017, compared with the $73.3 billion it produced during its last fiscal year.

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