GB525 Unit 7 Case Analysis Example

Why Target Canada Failed in Two Years: A Unit 7 Case Analysis of Knowable and Hidden Causes

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Purdue University Global

GB525: Global Business Environment

Unit 7 Case Analysis

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[Date]

The case facts are drawn from public reporting and company announcements; the diagnostic sorting and the lessons are the writer's analysis.

The Case in Brief

In January 2011, Target announced that it would buy the leases of up to 220 stores from Zellers, a Canadian discount chain owned by Hudson's Bay Company, for about 1.8 billion Canadian dollars. It planned to convert most of them to Target stores and open them over a short period. The first stores opened in March 2013, and by the end of that year Target was operating more than 120 stores across Canada, eventually reaching 133.

The results were poor from the start. Shoppers found empty shelves, prices that were often higher than at Target stores in the United States, and stores that did not look like the ones they had visited on trips south. Sales fell far short of plan, and losses mounted. In January 2015, Target announced that it would close all of its Canadian stores and seek creditor protection for the Canadian business, ending the venture with billions of dollars in losses and about 17,600 jobs lost. Joe Castaldo's reconstruction of the venture, based on interviews with former employees, remains the most detailed public account of what went wrong inside the company (Castaldo, 2016).

Timeline of the Decisions That Mattered

2011: the Zellers lease purchase, which fixed the locations, sizes and opening schedule of most stores before Target had studied each one.

2011 to 2012: a new supply chain and inventory system built for Canada rather than adapting the systems used in the United States, and three new distribution centers.

2012: product data for tens of thousands of items entered into the new system under tight deadlines by a largely new team.

2013: the opening of more than 120 stores in about ten months.

2013 to 2014: price and inventory problems persisting through two holiday seasons.

January 2015: the decision to exit.

Diagnostic Table: Causes Sorted by Group and Knowability

Real estate. Knowable before entry: many Zellers stores were older, smaller than a standard Target and in malls or locations chosen for a different kind of retailer. Surfaced after entry: how much these locations would hold back traffic once open.

Operations and supply chain. Knowable before entry: a new system, new distribution centers and a new team would all start at the same time, under a fixed opening schedule. Surfaced after entry: the extent of the data errors, which left distribution centers overstocked with some items while store shelves sat empty of others (Castaldo, 2016).

Customers and pricing. Knowable before entry: millions of Canadians already shopped at Target in the United States and would compare. Costs in Canada, including freight, wages, rents and duties on goods that do not qualify for duty-free treatment, were higher. Surfaced after entry: how sharply shoppers would react to the gap between their expectations and what they found.

Competition. Knowable before entry: Walmart had operated in Canada for nearly two decades and had been expanding its grocery offering, and strong Canadian retailers held the discount and grocery positions. Surfaced after entry: how quickly competitors would respond with prices and remodeled stores.

In all four groups, the main cause was knowable before entry; what surfaced afterward was the size of each problem, not its existence.

Why a Familiar Market Proved Distant

Canada looked close to Target: the same language in most provinces, a long shared border and shoppers who already knew the brand. Ghemawat (2001) argues that distance between countries has several dimensions, cultural, administrative, geographic and economic, and that firms tend to notice only the first. Target's distance from Canada was small in culture but larger in economics and administration. Higher costs made matching US prices hard, and goods sourced from Asia and shipped through the United States did not always qualify for duty-free entry. In Quebec, language rules for packaging and signage added another layer of administrative distance.

Speed and Commitment

In the Uppsala model, as Johanson and Vahlne (2009) restate it, a company learns a market through experience and relationships, and each new commitment waits on what the last one taught. Target did the opposite. It committed to more than 120 stores before it had operated one, and it built its systems and supply chain at the same time. When problems appeared, every store shared them. A slower opening, perhaps a few dozen stores in one region, would have exposed the data and pricing problems while they could still be fixed.

The Zellers deal drove much of that speed. Buying many leases at once gave Target a national footprint, but it also locked in locations and an opening schedule. Target's leaders appear to have treated the leases as an opportunity that would not come again, and the schedule followed from that decision rather than from what the organization could deliver.

Expectations as a Liability

Zaheer (1995) used the phrase liability of foreignness for the extra costs an outsider carries in a host market, from customers who do not know it to rules it has not yet learned. Target faced an unusual version. It was not unfamiliar; it was too familiar. Canadian shoppers knew what a Target store should look like, carry and charge, and judged the new stores against that standard. A new brand might have been given time; Target was judged on opening day.

Lessons for Managers

Treat a near market as foreign. A shared language and border can hide economic and administrative distance.

Match speed to learning. A large commitment before operating experience magnifies every early mistake.

Test systems before scale. New systems, new teams and new distribution centers should not all start at once on a fixed schedule.

Manage expectations a brand creates. When customers already know a brand, the first stores must meet that standard, or the brand's familiarity becomes a disadvantage.

A Counterargument

Some accounts defend the strategy itself and blame only its execution: had the data been entered correctly and the distribution centers run smoothly, the stores might have succeeded. The diagnostic table answers that view only in part. Execution failed badly, but the higher prices and the weaker Zellers locations would have remained even with full shelves.

Conclusion

Target's Canadian failure is often described as a supply chain failure, and the empty shelves were its most visible symptom. But the deeper causes were decisions made before the first store opened: the Zellers deal, the opening schedule and the choice to build everything new at once. Each risk was knowable. What Target did not know was how large each problem would be, and its speed left no room to find out before the problems reached every store.

References

Castaldo, J. (2016, January 18). The last days of Target. Canadian Business.

Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business Review, 79(8), 137-147.

Johanson, J., & Vahlne, J.-E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40(9), 1411-1431. https://doi.org/10.1057/jibs.2009.24

Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341-363. https://doi.org/10.2307/256683