The rise and fall of Target Canada
The video narrates Target's ill-fated expansion into Canada from 2011 to 2015. It begins with Target's $1.8 billion acquisition of Zellers leases and an aggressive plan to open 123 stores by 2013, bypassing the usual incremental rollout. Early foot traffic was high, but stores suffered from empty shelves, pricing 15 % above U.S. counterparts, and a chaotic rollout of a new SAP‑based ERP system that left only 30 % of register data accurate. Daily "go‑or‑no‑go" meetings revealed inventory, signage, and checkout problems, but a culture of groupthink prevented employees from voicing concerns. A massive 2013 data breach further damaged the brand. Financially, Target Canada lost $941 million in its first full year and ultimately $5.4 billion overall. CEO Greg Steinhafel was fired (with a $61 million severance) and replaced by Mark Shendell, who could not reverse the decline. By 2015 Target closed all 133 stores, laid off ~20,000 workers, and its stock briefly rose on the news. The video concludes with lessons about encouraging dissent, the importance of first impressions, and cultural change to avoid similar failures.
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American retail giant Target in 2011 decided they wanted to go dominate the Canadian market as well. So in a bold move, they invested $1.8 billion to take over the closing stores of a struggling chain up there called Zellers. It seemed like an easy win. Canada is a market very similar to the United States and right next door. But fast forward 2 years later, the whole experiment ended in bankruptcy and Target ran back to the United States. A few billion dollars lighter in their wallet and kind of embarrassed. How did such a strong retailer screw this up so badly? Well, I'll tell you the story of the whole thing in this video. Target CEO Greg Steinefel's plan for this whole rollout into Canada was to reopen these stores by 2013, 123 of them, in fact, under the Target banner. This was an unprecedented blitz for a retailer taking on Walmart Canada, who'd been there for over 20 years already. But this is not how retail rollouts and growth typically work. Usually they're incremental. Opening up region by region and store by store. But these guys wanted to skip all those decades and go straight to the finish line. But Target had reason to be confident. Customers who would travel across the border from Canada to shop love Target, and they had information that even folks inside of the executive ranks at Walmart Canada were scared of Target coming in. Their first move was to shutter all the Zellers stores they were acquiring and give them a chance to rebrand them as Target stores and reset them anew. But that had an interesting side effect, which was all those customers suddenly who were shopping at Zellers had to go find other places to shop in the meantime. And a lot of them went to Walmart and other places. And here's the thing about humans, and humans are our customers, right? It's tough to get them to change their behavior once they change it, but they will change it if you force them. And that's exactly what Target did. Got people to go look at other stores when they'd been potentially going to Zellers for years.
The first of more than 100 Target stores opened in Canada. The American discount giant, knowing— known for its cheap and chic merchandise, has hired 5,000 —employees in Canada. It expects to do big business here, and there were lineups today to get in.
The first Target stores opened in Canada in March 2013. The CEO of Target Canada, Tony Fisher, well, he greeted the media and the long lines of customers with a big smile. And early foot traffic actually exceeded expectations. It turns out they've been right. People wanted Target in Canada. But shoppers who entered the store discovered kind of a crazy experience. Unlike in a US Target with stock shelves and everything well organized and a well-oiled machine. They came into these Target Canada stores and it was basically bare shelves and kind of wrong signs. It was just a mess. To make matters worse, the Reuters news chain went in and looked at a basket of typical goods purchased at Target Canada and discovered that the prices on average were 15% more. In other words, a typical shopper at Target Canada was gonna spend $8 more for the same basket of goods. That would just be slightly cheaper across the border for their American friends. So the first impression here was that Target Canada wasn't offering the cheap chic that you saw in Target United States at the time. And many customers just walk right back out the door and went down the street to Walmart where they knew they could get what they wanted at a price they wanted. In a rush to launch, Target had installed a completely new operating system to try to go from 0 to 100 on a business that, well, had been nothing before. And it was all based on a big ERP system called SAP made by the German company. SAP. So while the shelves at the stores were bare and they were having a hard time getting what they wanted, by fall 2013, the actual distribution centers, 4 million square feet of them run by Target, were having overflowing merchandise and trailers having parked in adjacent spaces just to handle all the stuff they weren't sending out to the stores. It turned out that Target hadn't been ready to open these stores at all. In fact, before the grand opening in February 2013, Target's management had been having daily go or no-go meetings to try to figure out if they were ready to launch these stores or not. Employees had reported these problems with inventory, reported these problems with supply, with signage, all this kind of stuff, and even known about other problems like the checkout registers not even working correctly. Many things not ringing up when they tried to sell them. To put this in perspective, at the time of launch for Target Canada, only 30% of the data that they had in the registers and in their IT system was accurate. To put that in perspective, in the United States, the typical was closer to 99%. At these daily huddles, the employees actually knew about all these problems. But there was something weird going on, and that weird thing was called groupthink. And in subsequent interviews with the participants in these meetings, one participant later admitted that nobody wanted to be the person to speak up and say, hey, we're making a huge mistake here rushing these stores to open. And management, well, they chose to ignore a lot of what they were hearing. They decided to open the stores on time, take care of their bosses and make them happy, and hopefully they would fix the problems on the fly. Groupthink is a common problem amongst groups of humans, right? We are so wired to work with each other in a social group. That's our strength as a species. But oftentimes we will go along with things, even if we individually, or even the consensus of us, knows we're making a mistake. And Target at this time had a culture where people didn't feel empowered to speak up, and they were, well, running headlong into a disaster. All right, so before I tell you how this all ends up, let me give you a plug for this channel. Would love to have you as a subscriber. And if you're interested, I've taken the top 10 lessons from all these videos and put them into one easy document that you can download. There's usually a link in the first comment below. Thanks for being here. A lot of these employees were right about what was going to happen if they rushed these stores out too quickly, which was in today's highly competitive market of retail, you only get one chance to make a first impression. If people come in and decide you're not worth their time or effort, they ain't coming back for a second chance. And worse, they go around and tell your friends they suck and you're overpriced. Uh, that's what happened in Canada. Then things got even worse for Target. In late 2013, the company as a whole got hit by a massive data breach. You probably remember this in the news. 40 million debit cards were stolen and 70 million credit cards. It was a big deal.
40 million Target customers may have had their financial information stolen. The nationwide security breach affects anyone who used a credit or debit card at a Target in the last 3 weeks.
And so in fall of 2013 and into the winter, Target Canada looked up and had huge piles of inventory and no customers to buy them. They had to go and slash prices to try to move some of this stuff. And so in the first full year of operations, Target Canada of 2013 lost $941 million. Nearly a billion dollars. I remember Greg Steinhafel, the CEO of Target who'd pushed this growth into Canada. Well, he was fired in May 2014, and one of the contributing reasons was this performance in Canada. But don't worry about Greg, he took home a $61 million exit package, so he's doing fine. So the good news is, like corporate America, there's always another executive to hire. So Target hired a new representative to go in and run Target Canada. A man named Mark Shendell. And Mark went in and his worst fears were confirmed. Despite inventory stock levels and all the IT stuff having finally been fixed, albeit too late, suddenly he saw shelves full but no customers inside of Target Canada. Things got so bad that by June 2014, Target Canada produced, recorded, and released a personal apology video on YouTube to all of the Canadian shoppers asking them to please come back.
And they posted a video on social media apologizing to Canadians. Take The biggest challenges I think we face have been with our systems and how that's affected our ability to get inventory into our stores. We're just making sure that we're taking that feedback each and every day to try to resolve it, and we're getting new systems to try to make sure that it's working better.
Maybe we didn't put our best foot forward when we entered into Canada. We had some disappointments when we opened. Certainly we think we've disappointed our guests, but here at headquarters and at our store teams, we're working really hard to give everybody that unique Target experience.
I have a tweet in front of me right now that I'll read. Uh, if you want a second chance with Canadian customers, live up to the motto. You can't say expect more. Our guests are absolutely right. You know, we have set very high expectations. They've had great experiences at our US stores. We want to bring that same experience here.
But by then, the damage was not recoverable. The Canadians had written off Target Canada as even an option and had gone back to their old favorites, at Costco, Canadian Tire, and Walmart. In 2015, Target basically stunned the world by throwing in the towel. What seemed like relatively quickly, they would close the remaining 133 stores and lay off nearly 20,000 employees.
Target, the US retailer, has just announced it is shutting down, discontinuing its Canadian operations.
Target by this point had sunk $5.4 billion into their Canadian experiment. And got basically a big slap in the face and a level of embarrassment to show for it. On April 12th, 2015, the very last of the Target stores closed for good and the Target Canada experiment was done. Ironically, on the day that Target Canada announced all this stuff, their stock for Target Corporation rose 2%, showing just how much investors agreed that the Target foray into Canada had been a huge disaster. Poorly executed. And remember how Target had taken over all those Zellers stores and rebranded them as Target? Well, ironically, the brand Zellers is making a comeback in Canada now too, and doing, well, much better than Target did. As I think about the takeaway from this video, I think about stories I've heard about the Israeli Army, and they had gotten so tired of having situations where an individual inside of the army, a very junior person, had seen things going wrong and been afraid to speak up. That they created a culture where everybody was welcome to contribute their opinion, no matter how lowly. So you would see things like individuals like Buck Privates questioning some general's orders. And the reality is that's maybe extreme for Western business culture, but it is something that we need to make sure in our culture we don't have people scared to speak up. And the way that gets fixed is how you respond to criticism as a leader. If somebody asks you a probing question, you need to value it, welcome it, and appreciate it, and then give people the best answer you can. And that's how you create a culture that will avoid what happened here at Target, where people knew they were screwing stuff up and didn't do anything about it. All right. Let me know what you think about this Target Canada adventure. Anything I missed or you disagree with, let me know in the comments below. I try to read them all. All right. Catch you next time.
