The new kid on the retail block is feeling growing pains.
U.S. discounter Target Corp. arrived in Canada with a splash in March, stirring up a buzz about its cool factor and drawing throngs of shoppers. But it hasn’t been able to live up to high expectations, a new survey suggests. Shoppers complain that its stores have been short on inventory and that prices are higher than those at its U.S. outlets.
The customer-satisfaction rating survey by Forum Research puts Target at the bottom of a list of major retailers here, showing a decline from just four months earlier. Archrival Wal-Mart Canada Corp. improved from four months earlier and Costco Canada emerged as the clear winner.
“There was a lot of hype before Target entered the country,” Forum president Lorne Bozinoff said. “Now that people have shopped there, I think there is a bit of a letdown.”
The research reflects the pressure that Target faces in its first foray outside of its U.S. home base, as incumbent retailers ramp up their own operations to take on their daunting new competitor.
Grappling with the task of setting up 124 stores in Canada in 2013 by converting former Zellers outlets to its own banner, Target now is dashing to iron out wrinkles in its operations in a more heated competitive landscape.
Tony Fisher, president of Target Canada, said in June that the company is still learning to forecast demand based on domestic sales. “We’re responding as fast as we can.”
Even so, Target has achieved “incredible scale” to date, having built a supply chain specifically for Canada, including three distribution centres, renovated 68 stores in five provinces so far, and hired and trained thousands of employees, Target spokeswoman Lisa Gibson said on Friday.
Target’s own customer satisfaction surveys show “continuous improvement,” she said. “Target encourages feedback and we take it very seriously.” Its research indicates that new entrants into Canada see a marked increase in customer satisfaction over time as more stores open. “It is still early days.”
On Wednesday, when Minneapolis-based Target releases its second-quarter results, it is expected to elaborate on its Canadian performance. In May, the retailer said the stores had enjoyed an initial surge in traffic. But the company lowered its overall 2013 outlook after having reported disappointing first-quarter results amid cautious consumers.
Now Target is counting heavily on its Canadian stores to help bolster its overall performance in coming years, even as the market gets tougher. Last month, Loblaw Cos. Ltd. unveiled a massive deal to buy Shoppers Drug Mart Corp. and, in June, Sobeys Inc. agreed to take over Safeway Canada. Wal-Mart is rapidly adding stores and more food aisles.
“The battle for the convenient top-up grocery shop will be even more competitive,” said Stewart Samuel, program director at researcher IGD Services (Canada) Inc. However, Target is a savvy retailer that will be able to focus on fine-tuning its operation once it opens its stores this year, he predicted.
Target needs to draw more people to its stores for groceries, which tend to attract shoppers more frequently than apparel and home goods, said Amy Koo, senior analyst at consultancy Kantar Retail in Boston. In Canada, Target doesn’t have the extensive fresh food offerings it has in the U.S.
This fall will be crucial for Target to lure back-to-school shoppers with its cheap-chic products, including its Sept. 15 launch of an affordable line by designer Phillip Lim, who has dressed celebrities such as Jennifer Hudson.
Target Canada may need the added buzz. The Forum survey indicates that customers in Canada expect a better store experience. It found only 27 per cent of respondents are “very satisfied” with Target, down from 32 per cent in April. In contrast, 62 per cent are very satisfied with Costco, the same as four months earlier; 40 per cent are very satisfied with Wal-Mart, up from 39 per cent.
Over all, Target scored a mean 2.7 out of 4, compared with Costco’s 3.5, Wal-Mart’s 3.1 and a 3.2 average. Satisfaction relates to service, prices and/or merchandise offerings, Mr. Bozinoff said.