Go to the Globe and Mail homepage

Jump to main navigationJump to main content

 

 

ROB magazine

Why Canadians are paying more at Target Add to ...

It's finally here. After more than two years of giddy anticipation among shoppers and anguished hand-wringing among domestic retailers – both of which began virtually the minute Target announced it was bringing its chic-but-cheap retail mojo to Canada – the Minneapolis-based retailer started opening the doors of select stores across the country in early March.

More Related to this Story

Tony Fisher, a 38-year-old former baseball player, is leading Target’s charge here in Canada – which, at 124 stores coast to coast in 2013, is the largest Canadian retail invasion ever (nudging Walmart’s 122-store offensive in 1994). Fisher sat down with Marina Strauss for an exclusive interview about leading Bullseye into unknown territory.

It’s unprecedented for a retailer to come to Canada and open so many stores all at once and to fully renovate them. Not only that, but there are very high expectations. So how are you going to manage that?
You know, we spent a lot of time on what we called a Listening and Learning tour, starting in early 2011. We had a lot of insight from Canadians already—we had over 30,000 who held a REDcard [see footnote 1] and over three million Canadians who had shopped at Target within the last year. But we wanted to talk to other people who would be our future guests. I remember being in Halifax [2] and learning about the explosion. Do you know about that? It’s fascinating. I mean, it emptied the entire harbour.

Yes, and that’s why they...
You go around the country and you come to realize that there are so many differences. But it gave us great insight into what the expectations are and, to sum it up, the good news is that the expectations are very clear and consistent. And the guests want that same Target brand experience that they’re used to seeing in the United States. Canadians’ biggest fear,Marina, is that we’re going to change something for Canada. Don’t make Target Lite. So we are deeply committed to making sure we replicate that brand experience, which is about bright, clean stores, wide aisles, trend-right merchandise [3], great guest service, short checkout lines and incredible value. All these things that are part of our brand,we want to bring to Canada, and the expectations are quite high.

There are also high expectations around low prices. Will they be the same prices as in the U.S. or will they be comparable to other retailers in Canada?
We’re very keenly focused on price. We’ve talked a lot about the fact that we are going to be incredibly competitive within the Canadian marketplace.

We’re about to see a study come out on pricing in Canada versus the U.S.
I don’t think it’s going to make anybody feel better, because there’s the reality of the vast geography that is Canada and increased fuel prices and different wage rates [4]. There’s the reality of just the lack of economies of scale across a country this size, with a population that’s 10% of what it is in the U.S. So when we pull that together, we’ve built our business model to be incredibly competitive with the lowest-price leaders in Canada. On top of that, you have the 5% rewards we’re going to be offering.

The Globe just commissioned a survey comparing prices on a basket of items at Walmart here and in the U.S., and they were almost 23% higher in Canada. How will consumers respond to that, do you think?
I think we’re going to be very clear with our value proposition. Walmart has a different brand strategy than we do. “Save Money. Live Better”—they’re deeply focused on that. We talk about “Expect More. Pay Less.” So yes, you pay less, but it’s also about the “expect more” side. You can expect a brighter store, a cleaner store, wide aisles, in-stock merchandise, trend-right merchandise. We just announced a design partnership with Prabal Gurung [5]. We’ve also announced a partnership with Fondation de la mode de Montréal and the Toronto Fashion Incubator. You can’t get that anywhere else. We’re bringing that focus on design and innovation to Canada.

What have you found on the labour side here in Canada?
Wages can be anywhere from 10% higher to well into the teens, depending on the province. For example, Alberta has a 4.5% unemployment rate. You have people with varied levels of education making six-figure salaries in the oil fields, and we want to tell them the story about a retail career at Target. I remember being in Edmonton, where people weren’t even familiar with the Bullseye. And it was great for us to realize that, because it meant that we had more work to do, not only educating people on our retail brand, but also our employment brand. What does it mean [6] to work at Target?

Were there other parts of Canada where the brand was not familiar?
Brand recognition [7] in Quebec was about 20 points lower, both two years ago and today. So as of today in Quebec, we’rein the low 70s. We started out in the low 50s. Quebec has such a unique culture—the smaller grocery store trips, the smaller, boutique-type stores. We did a lot of work in Quebec. We’ve never had to translate our brand into a different language before, ever in the history of our company. We don’t say “Expect More. Pay Less” in Quebec. It’s “Trouvez Mieux. Payez Moins.” We’ve never had to do that before.

We also use the term “guest” at Target, because we think it’s an honour to have you in our stores. And so I thought, okay, what is guest in French [8]? Well, there are all sorts of different words—invité, visiteur, client. Invité was the most comparable to guest, so what do we think about invité? Well, boy, that’s a really personal word to Quebeckers; I mean,that’s like you inviting me over for a personal dinner. So I thought, okay, gosh, maybe that doesn’t make sense.

So what was the resolution?
We are going with client. I struggled with client, because it didn’t sound intimate to me. It sounds like there’s not that emotional connection, which is what “guest” demonstrates to me on the English side. Quebec was such a big one for us because people have gone into Quebec and they’ve failed [9]. We were deeply committed to not letting that happen and, as part of that, we had to make sure that we took advice from the right people and the right partners.

What about elsewhere in the country?
When we went out to Vancouver, where there’s a big Asian demographic, one of the things we heard was, “Just make sure you don’t have everything for tiny little people.” Because the size demographic is different—there are a lot more extra-smalls, rather than a balance between small, medium, large and extra-large.

So some retailers are going too far?
Yes, they’re going too far. We can’t just swing the pendulum too far and think, okay, we’ve solved it for Vancouver. And obviously the climate is different in Vancouver—it rains [10] a lot, so you need rain boots and rain gear and umbrellas. You don’t need the giant winter parkas, but you might need insulated rain jackets. And then you come to the Prairie provinces, and it’s just bitterly cold. One of my son’s friends from hockey moved to Fort McMurray.I used to think Edmonton was the North Pole. You know where [11] Fort McMurray is?

So your kids play hockey?
We are deeply, deeply invested in that game, I tell you. My two boys play rep and house. Being American, I didn’t know what that meant before I came here in August of 2011. Hockey trials started three weeks after we got here. I didn’t know what the difference was between rep and house. They had to kind of educate us.

How often do you get to the rink?
I’ll tell you, every single game. I don’t miss them, ever. The only exception to that is if I’m travelling to Minneapolis. I’m not going to miss our board of directors meeting for a hockey game, even though that is, without question, my number one priority.

What level are they at?
Triple A and double A.

Wow, you’re a serious family.
Then they both play triple A baseball. So, here we are, like, okay, we love them playing sports, but it is an absolute lifestyle choice. We’ve cancelled vacations. We didn’t go skiing last year because the kids were in the playoffs. We’re at the rink 10 or 12 times a week. I grew up in Minnesota. So did my wife. Our kids were born there, and for us to come here and not know a soul in Oakville, which is a great community, and to have the kids immediately get invested into these sports and make the teams they wanted to make and all of a sudden they have 16 best friends...I mean, they love it here. They absolutely love it, and for me, it’s like okay, this is home. This feels right.

What time do you get in to the office?
I’m usually in between 6:30 and 7. Now, if I have a late hockey game—because I still play hockey myself, twice a week—I get in later, maybe 8 o’clock.

Oh, wow, you’re busy.
Then I’m home for dinner every night by 6:15 or 6:30. We didn’t have hockey last night, and my oldest said, “I love this”—the fact that we have family dinners and we all five sit around and talk about what they learned, which somehow is always the hardest question for a kid to answer. When I see my kids react that way and at that age, oh my God, how could I not be home for dinner every night?

And if I’m not home for dinner, the only other place I’d be is at the hockey rink or the baseball field. It doesn’t mean that you shorten your time investment in the job, but maybe it means that you’re in the office earlier in the morning.

You were a baseball player, weren’t you?
I was, in a former life. I played in the Texas Rangers [12] organization. So I was drafted out of my third year of university, and I played for three seasons. And after my third season, it was kind of my life crossroads—do I play baseball for the rest of my life, you know, until I’m in the big leagues or bust, or do I get a real job? And I probably sent my resumé to 50different companies. I got an offer from Target, because I interned here in university. I started as an entry-level business analyst and I haven’t looked back since.

So tell me a tip about Target that you got at the hockey rink.
Well, first it was, don’t change a thing. And I always get, are you going to have Shaun White [13], are you going to have C9, are you going to have Archer Farms potato chips? They will go item by item and make me swear in blood that I’m going to have them in the store. And of course I turn into kind of media mode and say, well, we’re going to replicate that brand experience. But it’s amazing how passionate people are. And they want to know that we’re going to be competitive, and that’s an easy one to answer.

So how much higher will prices be?
It varies. To be perfectly honest...

On average.
Because we match the retail marketplace, we are doing competitive-pricing shopping all the way up until the first day we open stores. And so our pricing differential could be different in six weeks or two months from now.

You’ll be doing it once a week?
Absolutely. Yes, on a subset of items. For example, you might com-shop an item in one store that might change in price and you can make an assumption across a marketplace. Or you might com-shop items within Toronto that might be different in Winnipeg or Vancouver.

Right, because in outlying regions, things are always priced higher.
Yes, so one of the things we’ve found is that, I would say across the country, there’s not a huge disparity. We haven’t found significant double-digit variations across the general basket across the country, which is very different in the U.S.

What was one of the biggest surprises for you when you moved here in August, 2011?
I wanted to be a consumer here, so I could say exactly what it is like to shop at Loblaws or Sobeys or Metro or Fortinos on the grocery side, what it’s like to go to Canadian Tire or Home Depot, or to shop at Walmart or Shoppers Drug Mart. One of the biggest surprises early on was just how many different places I had to go to get what I wanted. There was a lack of one-stop shopping. Now, Walmart exists, but it’s the consumers’ mentality. It was just kind of part of the norm.

So that’s a challenge—to get people into that new habit.
Absolutely. We want to convert our customers to guests. We’re not going to win if people are coming to our store one time to see what all the fuss is about and then going back to their routine. We have to make Target part of people’s routines.

Analytics is your specialty. What have you learned about the customer base and what you need to do?
We have a deep investment in what we call guest insights, [14] and that gets translated into business intelligence. We can see shopping patterns, so where a guest will come into our store and buy a certain brand of deodorant that isn’t one of our top sellers. But they’re also buying toys, apparel, food. Then if you make assortment decision changes—maybe you take out your worst-performing deodorant, which might be that deodorant—what you’ve just done is taken that guest [15] completely out of your store, because they are deeply committed to this one particular brand of deodorant, and if Target doesn’t have it, they don’t come to Target. And so these items might be low sellers, but they’re actually trip drivers for our guests.

What will be some of those key items in Canada, based on your research?
I would say food’s going to be a very passionate topic for our consumers here. One of the things that we found is that the Canadian palate is different. Things are sweeter in Canada. Ice cream is sweeter, ketchup [16] is sweeter. So you’ll have a Hershey’s chocolate bar that looks like the exact same Hershey’s chocolate bar you bought in Buffalo versus what you bought in Toronto, and they will taste different.

I thought it was the other way around.
No. Americans have a little bit more of a bitter palate. And so one of the things that we’ve learned through food is that we have to be very thoughtful in how we think about even things like our own branded food formulations.

What else can you tell me about the process? What would you have done differently knowing what you know now?
Our biggest focus has been our team, making sure that we hire the right team and ensuring that our team remains our biggest competitive advantage. I would have even started earlier, if I look back, you know. We could have hired people very early [17], and it was quite a process to get people through the formal part of the interview, the offer process, the notification. And we’ve had some very generous competitors from a talent-donation standpoint, so I want to thank them publicly.

Canadian Tire and Walmart, Sears, TheBay.
Every one of them.

And how many Zellers employees?
We have quite a few Zellers employees. I don’t have the specific numbers because it changes by the minute. We have Zellers employees here at headquarters, we have Zellers employees in our district offices, we have Zellers employees [18] leading stores for us.

About what percentage of Zellers employees were hired?
I don’t know the percentage, and I don’t think we would talk to that publicly, because I think that it will constantly be changing. But I can tell you that at all levels in this organization we have people from Zellers, from Hudson’s Bay Co. and from every one of our retail peers out there.

What will be different in Target’s Canadian stores?
People are so concerned about Target Canada Lite, but I actually think of it as Target U.S. Plus. Because every new fixture we’re investing in our stores in the U.S., we’re getting them across the entire chain in Canada in year one. For example, white gondolas versus the old almond colour gondola. White gondolas19 look so much cleaner, look so much fresher, they look brighter and the products stand out as a star. That might seem like a simple change, but for somebody like me, that just lights up the store. So, new fixtures, new checkout lanes, new signing package,new guest navigation. We’re going to have them in every store in Canada.

What else struck you as being quite different here than in the United States?
For example, the flyer—what we call the circular in the U.S.—is going to be our primary vehicle to communicate weekly specials to the Canadian consumer. And that’s also our primary vehicle in the U.S. The big difference here is—and this is actually a major difference—that the flyer prices run from Friday to Thursday; in the U.S., it’s Sunday to Saturday. Our fiscal weeks are still going to be Sunday to Saturday, but our ad weeks are going to be Friday to Thursday. That’s odd for us to manage, but we have to make sure that we’re consistent with the Canadian marketplace.

Analysts who follow Target say that the margins in Canada could be up to two points higher than in the U.S. It’s just under 10% in the States, and they’re expecting that in five years or so,they’ll be closer to 12% here. What will help improve margins throughout Canada?
I’ll tell you what will help improve our margins: We looked at 276 Zellers locations from the Hudson’s Bay Co., and we structured the deal [20] so we could take up to 220 of those locations. And of those 220 locations, we selected a handful of them and sold some off to our competitors. So what we’re left with is the best of the best locations that are going to generate returns that are higher than what we get on an average store in the U.S.

And so when you look at what we expect to deliver long-term, we’ve talked about $6 billion in sales and 80 cents earnings per share [21] from Canada. It’s a very healthy business model for Target, and it’s because our locations are some of the best locations in the entire country.

The analysts say higher prices will help also.
Well, we’ll see on that.

You feel it’s the locations?
I feel it’s the locations. Our biggest benefit from aprofit-building [22] standpoint, and it returns back to the overall corporation, is the fact that we picked the best of the best locations—locations like the Square One mall in Mississauga. Holy cow, I mean,you can’t even find a parking spot there sometimes. The mall’s huge, and it’s right next to a GO train station, so the traffic coming through [23] there is unbelievable. That location is phenomenal.

We’re going to be profitable by the fourth quarter of this year—less than a year after we opened the stores. That’s incredible.

And you also have stores that area round 100,000 square feet versus 135,000.
Our average store is about 18% smaller than in the U.S.

So that helps in terms of productivity?
It helps in productivity, but the best way of driving profit is through revenue and through growing profitable sales.

What about Target’s urban strategy?
We’d love to have a store in Toronto. We’d love to have one. I mean, our city Target strategy—we’re in the urban areas of L.A., San Francisco, Seattle, Chicago, these are locations that were unheard of in big-box retail, which is why it’s a smaller format for us. But we have a couple of stores now on the south side of Manhattan, and we have one in downtown Minneapolis, which is a great store for us, and it’s right next door to our headquarters. So we love urban stores. It’s just that the real estate is such a challenge. And it costs a lot of money to manage those stores,because the logistics are a big challenge. We do very well in 130,000-square-foot buildings with one door. But with a two-storey octagon with four entrances, like at Square One, you have to staff the entrances, you need checkouts at the entrances, which is more labour investment. There are conveyors for the stockrooms and multilevel stockrooms and issues around how trucks can get in and out of there.

Tell me about e-commerce. Is it going to launch in 2013?
We will not have e-commerce on day one, but we’re going to be deeply invested in online presence. You know, we already have a very big presence on Facebook, we have a big presence on YouTube, we have a big presence on Twitter, so it’s one of the best tools we can use to focus on guest engagement. Probably after this interview we’ll get 370,000 Facebook [24] fans—which, if you compare that to the rest of the industry, is pretty amazing. And we haven’t opened up one store yet [25].

Footnotes:

  1. Target-branded debit or credit cards that give customers a 5% discount
  2. Fisher is not Canadian; he grew up in St. Paul, Minnesota, not far from Target's first store in Roseville, opened in 1962
  3. Including cookware by Giada De Laurentiis, bed, bath and decor from Oprah fave Nate Berkus, cosmetics from makeup artist Sonia Kashuk and a limited run of clothes from Hollywood stylist Kate Young
  4. Minimum wage is $7.25 in the U.S. and $10.10 in Canada
  5. Prabal Gurung
  6. For one, it means not being unionized - Target has fought off efforts to organize employees and won a labour board battle with Zellers' union last year
  7. Brand recognition among Canadians is at 92% today compared to 70% in 2011
  8. Fisher took three years of French in high school and also completed an executive French course after moving to Canada
  9. Walmart didn't fail so much as falter when, in 1994, they distributed flyers in Quebec in English only, running afoul of both provincial language laws and French residents
  10. 1.2 metres a year, on average
  11. It's 435 kilometres north of Edmonton
  12. Fisher was a sixth-round draft pick in 1996 - the same year the Rangers drafter pitcher R.A. Dickey in the first round
  13. White, the Olympic gold medal snowboarder, has a line of clothing for Target
  14. Target assigns each customer, according to The New York Times, a "Guest ID" to track every item they buy and every coupon they redeem, and uses that to predict, say, when a woman is pregnant - as early as the first trimester - in order to send relevant offers her way and turn her into a habitual Target shopper
  15. Median age: 40; median household income: $84,000; 43% have kids, 57% have a college degree
  16. According to Heinz, different nations have different ketchup palates. Here in Canada - and Britain, Australia and Venezuela - we like our ketchup sweeter. In the U.S. and continental Europe, ketchup "users" - Heinz's wording - like it a little spicier
  17. Target has hired 5,700 so far, and will employ 27,000 by year's end
  18. Buying only Zellers' store leases, not the whole company, allowed Target to lay off 27,000 Zellers workers. When Walmart took over Woolco in 1994, it hired on 16,000 employees at 122 locations
  19. A gondola
  20. Total cost: $1.8-billion
  21. Target's overall sales last year were $72-billion
  22. Total profit: $3-billion (2012)
  23. 21 million people a year
  24. 863,000 fans on Facebook and 41,000 followers on Twitter (as of early March)
  25. Target opened three stores in Ontario on March 5, another 17 on March 19, with an additional 4 stores scheduled to open on March 28
Single page

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular