Target’s to-do list for 2014
January 03, 2014 | Kristin Laird and David Thomas | Comments
Internal insights and third-party advice on what Target should do next
In late November, just ahead of Black Friday and the holiday shopping season – and just after Canadian shoppers delivered a black eye to Target’s Q3 earnings report – we caught up with Livia Zufferli, vice-president of marketing at Target Canada to see what the company learned from a rougher-than-expected entry into this market. Target racked up $333 million in Canadian sales during the quarter but the division was cited as a major factor in a 50% drop in profit. But hey, after one of the most anticipated retail invasions led to 124 big box store openings across the country in just nine months, it’s not surprising that you can end up with too much of something and not enough of something else.
“It’s crazy to think about in terms of how much was accomplished,” Zufferli said. “It’s a massive undertaking [and] one that we didn’t expect to be perfect out of the gate. I think we feel pretty confident about the store and the brand and what we’ve brought to the Canadian marketplace. It really is a differentiated option and alternative for the Canadian guest. We’ve had lots of positive wins and learnings. We are fully prepared to take these learnings [as] opportunity areas for us to continue to develop and improve our offering. We’re in a different part of our brand lifecycle in Canada. The U.S. has a 50-plus year history, and we’re brand new this year.”
We asked Zufferli what the company’s takeaways have been from the launch. Her comments are adapted from a longer interview. The picture that emerges from her answers and recent comments from Target reveals five problems that need some fixing.
Not enough inventory = too much empty space on shelves
“Coming into a new market for the first time and forecasting what sales will be on an individual product or a category level is highly complicated when you don’t have prior sales history. As we get more data, it builds the robustness of our forecasting. Cycle to cycle, we’ve gotten better with our in-stock and replenishment. That bigger base of knowledge is definitely showing its results now. Stores that have been open the longest are performing the best from a sales perspective. So we’re happy about that.”
Too much inventory = too much emergency discounting
Zufferli didn’t speak to this with Marketing, but the company’s quarterly numbers made it clear Target had more trouble with inventory than just empty shelves. The retailer found itself backing into deep discounts when some stock piled up, especially in the home goods and apparel categories. The company said it normally enjoys a 30% profit margin on sales but discounting cut Canadian margins to less than half that rate in Q3.
No inventory: Is this just a better Zellers? Where are those brands I see in the U.S.?
“We brought the majority of our brands from the U.S…. like Pixi and the Sonia Kashuks of the world and Shaun White and a lot of our designer partnerships and exclusives. And we supplemented them with Canadian collaborations that have been really well received [like] Beaver Canoe. I truly believe we are a differentiated alternative that didn’t previously exist in the Canadian marketplace.”
Canadians like the home goods and apparel at Target but haven’t taken to food and drugs as part of a one-stop experience
“Entering the Canadian market, we see a propensity to shop more often [and at] more retail shops. We understand the task at hand and it really is about helping our Canadian guests understand what we offer. We are looking to hero those categories a little bit more in some of our marketing and our messaging. Not all Canadian guests know us that well yet.”
Managing expectations on prices
Consumers have been widely quoted on their concerns that another thing missing from Canadian stores is U.S.-style low prices. Zufferli didn’t speak to this but Target Canada president Tony Fisher took pains again in the recent quarter to explain Target’s strategy is about competitive pricing based on competition in Canada. You want U.S. prices? Shop in the U.S.
Brand consultancy Level5 Strategy Group recently put its proprietary BrandMap measurement tool for consumer sentiment to work and found just 24% of Canadians consider Target “better” than other retailers, a drop from its score of 57% just six months earlier. Level5 CEO David Kincaid said the reading indicated it was a long shot for Target to make up that ground over the crucial holiday season.
The firm’s key conclusion: “Target’s disastrous market entry offers retailers a valuable lesson about how to operate within the Canadian space. The brand’s efforts to Canadianize fell flat. Consumers turn away when U.S. brands hit the Canadian marketplace and work harder to match Canadian culture than brand legacy. Canadian flavour can be an addition to a retailer’s core value proposition, not a substitute.”
Level5’s advice: Don’t be Canadian, be you.
This story first appeared in the Dec. 23 issue of Marketing as “Blame Canada.”