The Zellers deal allowed Target to do its Canadian expansion quickly – maybe too quickly. The retailer might have been better off with a slower approach.
Alex Arifuzzaman, a partner at InterStratics Consultants, a retail real estate advisory firm, characterizes Target’s sites as ranging from “very good” to “average.” He said Target is scheduled to open an “excellent” store soon in west-end Toronto that is being built to its specifications at about 140,000 square feet, close to the average size of its U.S. outlets.
The locations it picked up from Zellers “weren’t ideal,” he said. “But they were able to ramp up much faster” than they otherwise would have been if the company had bought store leases one by one. It poured about $10-million into renovating each store.
“I don’t think the locations are the issue – it’s what’s in the box, I think, that is the issue in terms of Target’s performance to date.”
Target’s first stores rolled out prematurely without the proper merchandise, he said. “You only have one chance to make a first impression and they failed to meet their U.S. experience in terms of both price and selection. … Other retailers such as Canadian Tire do huge store launch events with deep discounts. Target did not. They had a high hurdle, no question. They did not clear it.”
A survey done in late 2013 by brand consultancy Level5 found that only 24 per cent of consumers considered Target better than other general merchandise retailers such as Wal-Mart Canada Corp. and Canadian Tire Corp. Ltd., a stark drop from the 57 per cent just six months earlier. It left Target on par with troubled department store Sears Canada Inc., Level5 chief executive officer David Kincaid said.
Target has also suffered because consumers psychologically connect Target with Zellers – especially because the stores have a similar colour scheme. Zellers had emulated Target in its choice of red-and-white decor and some of its merchandise and store presentations, Mr. Kincaid said. “Consumers’ emotional memories don’t just shut off because you change the name of the store.”
The firm’s research last spring found that prices of a basket of household and food items were just 3 per cent cheaper in Target’s U.S. stores compared with a comparable Target in Canada; when adjusted for foreign exchange rates, the U.S. prices were a mere 0.4 per cent cheaper.
Somehow, that hasn’t improved the perception among customers that Canadian prices are out of line. Mr. Fisher has repeatedly said that prices here are comparable to those at low-cost Canadian rivals, and higher than those in the U.S. because of higher transportation, labour and other costs here.
In some categories, there are big price discrepancies. Research firm Gfk has found Target charged 31 per cent more on digital cameras and 11 per cent more on a home-theatre-in-a-box stereo at its Canadian stores.
Software engineer Nikolai Grigoriev said he headed to his nearby Target in Brossard, Que., last fall looking for a vacuum cleaner. He ended up buying something cheaper at Sears. If I am to go to a few local stores to find something inexpensive for my home, Target won’t be among my destinations,” he said.
Even so, Target wants to woo back shoppers such as Mr. Grigoriev. It has started to offer more deals, especially for everyday household and food items that tend to bring customers to stores more often.
“Selectively we’re going to go out and be more aggressive,” chief executive officer Gregg Steinhafel told analysts on Wednesday.
Most industry experts are betting Target will eventually get it right in Canada. Mr. Stern, the retail consultant, said other chains have stumbled and picked themselves back up. When consumers complained that Domino Pizza’s product tasted like cardboard, Mr. Stern said, the company responded with a new recipe and marketing that essentially said: We know the pizza was terrible, here’s the new stuff.
“At some point Target is going to have to do a Canada 2.0 and say, ‘We’re listening, we heard you, here are the things we’ve done to make those changes for you.’”
Gerald Storch, a former Target vice-chairman and former CEO of Toys “R” Us, said Target often has trouble entering new markets, even in the U.S. “At first , the consumer sees that beautiful store and assumes it’s more expensive than it actually is. It just takes time. They need to improve their price perception and their in-stock position.
“It’s a very large, well capitalized company. They should be able to fix it. … Obviously they didn’t expect to lose almost a billion dollars in one year. That’s a major disappointment.”