The Minneapolis-based retailing giant surprised southern Ontario consumers a couple of weeks ago opening its first three stores north of the border earlier than expected. People lined up in anticipation of the highest-profile retail arrival since Walmart entered the market nearly 20 years ago, but once they got inside, many were disappointed.
Despite Target’s efforts to embrace Canadian culture, including a design partnership with Canadiana chic brand Roots as well as an entertainment partnership with Vancouver-born crooner Michael Buble, there were a number of product shortages. This would be excusable in a newly-minted store that’s getting the kinks out—but perhaps most importantly, the low prices on which Target had built its reputation and brand weren’t there, or at least not to the extent that cross-border and online Canadian shoppers expected.[more]
What’s that saying about the number of chances you get to make a first impression? It’s not that Target Canada’s prices aren’t competitive against other Canadian retailers—they’re on par with what Walmart Canada, Canadian Tire and the Loblaw’s grocery store chain charge—but in many cases they’re more expensive than Target locations in the U.S. There are few things more Canadian than making a run for the 49th parallel and filling up the car with as much cheap U.S. merchandise as possible, so shoppers from north of the border know their prices.
Target—which was ranked No. 2 out of the 50 top U.S. retailers on Interbrand’s just-released 2013 Best Retail Brands report—announced its intention to storm the Canadian market a couple of years ago when it bought the lease hold agreements of nearly 200 Zellers stores across the country. It eventually decided to keep 124 of the sites, with the rest disbursed to Walmart or back to the landlords. The company touted the brand in a travelling roadshow that visited Canadian cities coast to coast, putting on a variety of performances, events and community givebacks to announce its pending arrival.
The three freshly-opened stores represent just a small fraction of Target’s ultimate footprint. It plans to open more than 120 stores in five separate waves before the start of the ultra-lucrative Christmas season—but the news value of the ribbon cutting for the 78th location won’t have nearly the same cache. And if Target’s prices are simply competitive and not the rock-bottom bargains that many Canadians are expecting, the bulls eye brand will take an unexpected hit.
With the Canadian loonie at virtual par with the U.S. Greenback for the last several years, it has continually frustrated shoppers in the Great White North to see higher prices than their American counterparts enjoy. Books, booze and clothing are just some of the items that have remained stubbornly high in Canada even with U.S. version is available just a short drive away. Target was supposed to overhaul the pricing landscape and capture $3 billion in sales annually, but whether that comes to fruition now has been thrown into doubt.
“We’re working to deliver on our ‘Expect More, Pay Less’ promise,” John Morioka, SVP of merchandising at Target Canada, told the Wall Street Journal during a recent tour of a Toronto area store. With significant price discrepancies on many items, Target’s Canadian marketshare will likely fall well short of the country-wide dominance that many expected. Some of its competitors, such as Hudson’s Bay, which have been preparing for Target’s arrival for two years, could be breathing slightly easier today than they were a month ago. The price discrepancies could also lead to Target cannibalizing its store sales north of the border as Canadians continue to flock to U.S. Target locations. The company defended its pricing strategy in Canada by noting transportation and labor costs—two factors driving higher Canadian prices. Higher rental rates are another.
The negative feelings arising from the pricing discrepancies could put a serious dent in, or eliminate altogether, the significant brand building and goodwill that Target compiled late in 2012 and early this year in order to make a smooth transition into the region.