Target traces its roots back to Dayton Dry Goods, which was founded by George Dayton near Minneapolis in 1902. Target Stores, Inc. is a division of Dayton Hudson Corporation, and is the third of the "Big 3" in U.S. discount retailing, behind Wal-Mart and Kmart. Curiously enough, Target opened its first store the very same year as did Wal-Mart and Kmart, in 1962. The $70 billion titan operates over 1,850 locations in the United States. Target decided to expand into the Canadian market partly because Canadian shoppers already enjoyed American Targets. In fact, “cross-border shopping in Canada is very popular due to duty free exemption.” Many Canadian retail rivals feared Target’s entrance into the Canadian market.

Target’s entry to Canada was through the acquisition of Zellers, a once prominent Canadian discount retailer, by purchasing lease agreements of 220 stores for roughly $1.8 billion. Additional investments of $1 billion were put into the stores for renovations and fixture upgrades. These locations “were [located] in rundown shopping centers that were hard to access. The stores were smaller than Target's typical U.S. formats and took more money than expected to expand and convert to its trademark red-and-white layout.” Many of the stores were in low-traffic areas, far away from their target audience.

In Canada, it is critical to understand “complexities of the small population base” and build a coherent store density plan that caters to major metropolitan areas. Additionally, companies need to understand the unique geographical and linguistic differences in Canada. Companies need to build marketing plans that account for the diverse population. The differences between French-speaking Montreal and English-speaking Vancouver cannot be overstated.

Besides, differences in Canadian packaging, protectionist tariffs, and exclusive wholesale arrangements forced Canadian Targets to develop an entirely new logistic network to support the Canadian stores since they could not “be serviced from the company’s American distribution network.” As a result, the company needed to build new distribution centers. Typically, a distribution center takes several years to complete and integrate in the overall system. Target planned to build three distribution centers in less than two years.

On top of this, Target purchased an unfamiliar “off-the-shelf” inventory system because they didn’t have enough time to customize their existing system for the Canadian market. Their American inventory system was not compatible with “the Canadian dollar [or] even French-language characters.” This new internal reporting system did not interface well—or at all—with the other Target systems. It forced some stores to manually process and “verify every single piece of data,” which drastically slowed efficiency and profitability.

The chain failed to realize that the Canadian market was already saturated with value brands, including Wal-Mart, Costco, and Giant Tiger. These competitors were able to successfully undercut Target prices, so many Canadians complained about Target’s high costs. These higher prices meant that Target could not deliver on its core value proposition: Expect More, Pay Less. Additionally, bottlenecks at the new distribution centers and inconsistencies with the new reporting system created huge “inventory problems...[which] led to empty shelves.” Fast forward to January 2015 (two years after Target entered the Canadian market). The American retail giant announced it would be exiting the Canadian market resulting in net losses of $2 billion and over 17,000 jobs.

Instruction: Answer ALL questions based on the case study above.

1. Based on the case study, briefly analyze and describe TWO (2) reasons for Target’s failure in Canada. 

2. Which would be a better entry strategy for Target, acquisition, or joint venture? Discuss.
   

3. In your opinion, was Target management’s decision to stop the Canada operation a fair action to take? Justify your reasoning.