Target has become a household name across the United States known for being a big box store that holds the best moderately prices items in any subcategory. After establishing a presence and dominating the American market Target was ready for the next step in their company’s future, following the steps of Walmart they decided to globalize while staying in the same continent, moving to Canada. This was a short-lived expansion due to unreliable informational systems, oversight of logistics as well as an unorganized timeline. These errors ended up costing Target millions if not a billion dollars’ worth in losses through a project that was supposed to establish the brand worldwide. It took Target years to recover halting any future plans with a struggle to fix this major loss.
Target is an undeniable powerhouse in the big-box store market but not to the indistinguishable level of Walmart, which holds 11,695 stores worldwide. When looking to expand globally, Canada was the most valuable option, due to its location and language similarity. Walmart operates around 400 stores in Canada and made the move across borders in 1994. Joel Alden, a partner of A.T. Kearney says “Canadian consumers have many similarities to U.S. consumers, making the learning curve steeper than going to a very different market.” Just logistically it is easier to extend a supply chain from U.S. to Canada rather than another continent along with the benefits of brand recognition amongst consumers. The product mix that Target would supply to its Canadian stores would not have to be completely revamped to meet consumer’s needs, but would have to be carefully chosen in what Canadian products would be included. The projected growth of Canada’s markets entering 2013 was 2.5% and with stories of Canadian families driving over the border just to buy products from Target, it was evident that the only place Target could go was up north. The projected growth rate comes from the rate at which a nation’s gross domestic product grows or changes from one year to the next. It resembles the market value of all the goods and services produced in a country in a particular time frame. Another feature to look at is the difference between U.S. and Canadian consumers, although Targets expansion into Canada was unsuccessful all of the financial reports from 2013, the year when the first Target Canada opened, shows the increase in Canadian purchasing power. According to the Annual Financial Report of the Government of Canada Fiscal year 2012-2013 “Revenues increased by $7.5 billion, or 3%, from 2011–12, primarily reflecting higher economic activity. Program expenses increased by $2.1 billion, or 0.9 per cent. Public debt charges were down $1.9 billion, or 6.2%.” Based on these numbers, it exhibits Canada’s financial stability and what seems to be bright future with consumers purchasing power. Canadian households spent an average of $58,592 on goods and services in 2013, up 4.1% from 2012. Whereas in the US average annual expenditures decreased slightly from $51,442 to $51,100 and consumer spending in 2013 decreased 0.7 percent from 2012.
Officially announced to the public in 2013, Target’s CEO, Gregg Steinhafel said that this international expansion was planned over two years with the first transactions taking place in 2011. Target bought 220 Zellers department store locations from the Hudson’s Bay Company for $1.825 billion. Target has agreed to pay Zellers Inc. in two equal payments of $912.5 million, which will get them the leasehold interests of the locations operated by Zellers Inc.
In an interview with Hani J. Zayadi, a past high ranking marketer for Zeller, which took place when Target acquired those stores he said the main reason for these American big-box stores coming to Canada and eventually driving sales away from Canadian based stores “would be a combination of proximity and scale. It's an easy leap for U.S. retailers to come across the border, and they can leverage their scale in a smaller market.” However, out of the 220 leases only 133 opened, proving to be a major loss on Targets part. After dividing 1.825 billion by the number of stores, 220, the price of acquiring one Zeller site was $8,295,454.54 and with 87 unopened properties Target had spent a total of $721,704,545.85 on locations that would never even be open to the public thus never earning any profit back. When looking at the consolidated financial statements from Targets corporate website of 2011 and 2012 there is a significant decrease in current assets which can be converted to cash, current assets can fund real-time operations while paying current expenses. While noncurrent assets increased tremendously from 26,492 to 30,181 much to do with the acquisition of Zeller property, noncurrent assets are made up of the long-term investments a company has with the guideline that it must have a “useful life” of more than one year. This is obviously due to the fact that Target made major capital investments in Canada thus increasing their level of risk.
In March of 2013, the first line of Target Canada stores opened to the public. But months before in planning Target started their hiring process. With the hopes of opening 133 stores, each store aimed to hire 150-200 employees at each location resulting in a workforce of 20,000 staff. After gradually opening 124 stores by the end of 2013, the economic results were worse than expected. Along with Targets sheer mistake of purchasing and opening too many stores too quickly in Canada; there were some operational problems that went unsolved for most of the time Target Canada was open. An unorganized distribution system set was in place that was unequipped to handle Canadian consumers and their buying levels. In using an “Auto replenishment” process which bases reordering stock on past order and sales so when opening a new store in a new country it left shelves barely stocked as well as left with massive inventories of items with a much lesser demand. Target employees said that inventory numbers would be missing or incorrect, and miscommunications between the U.S. and Canada teams caused long lead times thus stalling deliveries across the stores. Also with a different currency and some different French-language characteristics other easy decisions in American Targets were either translated or implemented wrongly in stores. In order to prevent this from happening Target could have prolonged their opening, could have compared inventory needs at stores near the Canadian border, which usually has some customers that come from Canada, while replacing some items with their Canadian counterparts. In February, Target had to announce its loss of $941 million within its Canadian stores with revenue only reaching $1.3 billion. To put it in perspective, the revenue of U.S. Target in 2017 was $71.88 billion with 1,880 stores open. This was coming at a time when Target was still recovering from a major data breech in December of 2013. Credit and debit card information of over 70 million customers were stolen along with more personal info like names, mailing addresses and phone numbers. Customers now had to call the credit card issuer to report the data breach and make sure to keep records of customers own spending to compare with the monthly bill. Being that many of Canadian customers had shopped in U.S. stores before the Canadian stores opened, people were tired of being disappointed by Target across both borders. In an evaluation of the return on capital employed from the chart above it is obvious to see the decrease. A higher ROCE relates to a more efficient use of capital, so with the 2011 ROCE of target being 3.2% higher it highlights the grim future Target Canada would have. Specifically, in 2011 the total assets increased more than EBIT, so even in 2012 when the earnings increased it still led to a lower ROCE. But in 2013 all assets of the ROCE decreased thus explaining why that year was viewed as the turning point in Target Canadas timeline. Yet, even with all the negative feedback from consumers about the store’s operating systems and tangible financial reports mentioning how Target Canada was already a failure Target went ahead with opening 9 more stores in Canada. Just one month after it was uncovered that Target has lost $942 million in Canada for the 4th quarter of 2013 with that number growing more and more each day.
The life of Target Canada finally took its last breath in January of 2015 after a 4-year period of rushed products, broken point of sale systems and an inability to admit stores were opened too quickly without the necessary research and training. After a lot of shuffling between the executive board and management teams, Target Canada officially filed for bankruptcy protection under the Companies’ Creditors Arrangement Act. This federal law lets “financially troubled” companies restructure their infrastructure, if they didn’t utilize the act most of their assets could be automatically seized by other companies. Investors were thrilled to hear that the suffering was almost over, as stock prices rose 3.32% making the market price $76.80 after Target announced the news of its Canadian counterpart. It was stated that Target would lose around $5.4 in just the fourth quarter due to pretax losses. This can be attributed to the exit costs and operating losses Target acquired once announcing the bankruptcy and closing of Target Canada. Even more money had to be put to consulting firms like, Alvarez & Marsal, an international consulting firm which helped aide in the liquidation and end processes of how to deal with unforeseen issues like how to pay employees severances. The Financial advisory firm Lazard Ltd. also was brought on by Target to help with all of the physical locations Target Canada had. According to the new CEO at the time Brian Cornell “about $1.2 billion in debt will come off the company's books just from getting out of the leases alone, providing a buyer can be found.” Not only did the opening of Target Canada produce problems and losses within the 4-year operating period it continued to linger in Targets financial future.
Targets overexpansion to Canada cost the company millions of dollars in losses, and an adaptation of Targets smaller city-based stores would have had a greater success. Rather than take on the whole “Great White North” Target Canada should have been focused more towards concentrated metropolitan areas building their customer loyalty a couple locations at a time before branching out to the rest of Canada. If Targets team was equipped with the right financial advisors from the beginning unnecessary losses like purchasing more locations than opened could have been avoided saving some money before the reality of Target Canada set in.