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Mistica  Consulting  –  Target  Canada  

BUS800
FINAL CASE
Target Canada

 

Submitted by: Ernest Mistica (500197663)
 

Submitted on: Sunday, April 21st, 2013
Submitted for: Dr. Brynn Winegard

 

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Mistica  Consulting  –  Target  Canada  

Target Canada is making Canadian history as it expands its US operations for the first time into
Canada with a plan to open up 124 stores across the nation (Strauss, 2013). After achieving approval for
expansion from the government of Canada, Target Canada has overcome initial barriers to entry (A4) but
now face new issues; ones that affect their external business environment, the internal organization, and their
finances. Through an external analysis of the Canadian retail industry (A1), it will be evaluated how Target
Canada can achieve the key success factors (A2) within the industry and position themselves strategically
(A5) to dominate a portion of the market.

Issues  and  Rationale  
The business issue facing Target Canada is that they are entering a highly competitive, fragmented
market that is ripe with strong competitors who have an established presence in Canada (A6). In order to
move away from Walmart and Costco’s domination of low-cost providers, competitors are moving towards a
differentiated approach to doing business. With Target’s focus on guest experience, corporate culture, and
team members, Target is one of the few entrants competing with different strategy (A1c). Many competitors
are moving towards a position that Target is also aiming to hold. Despite a strong transmedia narrative push
featuring their new Canadian identity (Cosco, 2013), their current positioning has put them against Canadian
icons and into a negative light with consumers.
The organizational issue facing Target Canada is that they are not fulfilling their mission statement,
which focuses around ‘Expect More. Pay Less®.” This failure is due to the logistical, human resources,
public relations and pricing issues they have encountered as consumers are having negative first impressions
of the company. The company’s distribution system (B2a) has resulted in operations issues that Target
appears to be having as geographic distances and demand prove to be harder to handle than expected (Nice,
2013). After the buyout of Zeller’s leases, the handling of the rehiring of Zeller’s employees was taken
negatively by past employees and by the public, with common misconceptions and bad press surfacing.
Lastly, Target’s promise mission for consumers to ‘pay less’ was found by many to be untrue, since
compared to Walmart Canada and even Target in the States, Canadian customers were paying anywhere from

 

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Mistica  Consulting  –  Target  Canada  

0.2% to 8.6% higher for the same items at Target Canada (Strauss, 2013). This failure for Target Canada to
fulfill its mission (B1) has hurt its launch into Canada as expectations are lowered for Canadian consumers.
Although the finances available publically are limited for Target Canada with their official soft
launch happening in March 2013, Tony Fisher, President of Target Canada, gave out telling information on
revenues and costs. With projected revenues of US$6 billion, the incurred costs of expansion have already
totaled up to US$3.3 billion within the first few months. The startup costs have been higher then expected
(Shaw, 2013), thus negatively affecting future plans to expand (B3).

Possible  Alternatives  
Based on the current issues faced, Target Canada could recover its customer loyalty and strong
brand image by having an official cross-Canada hard launch in Winter 2013. With their initial soft launch of
stores, there has been mixed reviews of Target that have hurt its brand image (Nice, 2013). In order to
recover before the holiday season, rolling out a plsn that pushes its community focus before Halloween
would flow well into a holiday push. Stores would have the ability to work out the logistical issues facing
Target currently and iron out all of the supply chain efficiencies during the slow summer months prior to the
back-to-school season. As back to school ends, the Halloween season would entice customers to come
through Target as their target market (40 year old women with an average household income of $84,000)
shop for candy and costumes (Strauss, 2013). Then each store would be empowered to hold a trick or treat
event where customers could come in for a free treat from a Target store. This would include candy and
treats, but also give the ability for customers to donate $1 sponsored by their store to any charity that would
be at the store setup that day. Upon release of the Holiday season, a promotion could be used as follow up to
the Halloween donators that would feature a hard-launch community event that could feature a sale at the
beginning of the holiday season for those that donated, and also feature local Canadian artists in the store
playing music which would further strengthen the community relations.
A second alternative for Target would be to start their ecommerce platform in the coming Fall, ready
for back to school. With their current logistics problems with getting inventory to stores, Target can mitigate
this consumer backlash with getting an ecommerce platform up and having consumers shop online for any

 

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Mistica  Consulting  –  Target  Canada  

items they did not find in store. By pairing up with a third party distributor such as UPS or FedEx to
distribute the goods, they can spark interest online about Target and expand their product selection while still
providing timely delivery to customers. This would drive in store sales by targeting consumers who were
turned off at the physical experience at first but tried out the online purchasing, and getting them to return to
the stores for the service experience that cannot be experienced through online shopping (Oh et. al., 2009).
The same platform could be transferred from the US operations in time for the Fall release, just in time for an
important shopping season for their target market (Close-Up Media, Inc., 2012).

Recommendation  
The proposed recommendation would be to leverage existing partnerships to drive sales during peak
and down seasons. Target Canada can leverage one thing that its competitors do not have; an established
brand in Starbucks that can drive in-store visits during the summer seasons. With the hot summer season iced
drink sales, Target Canada can create a co-marketing campaign with Starbucks that can offer sales discounts
during the summer season if people bring in their Starbucks receipt to the Target cashier. A 5% discount,
which can be stacked with the existing Red Card 5% discount, can entice Target’s secondary target consumer
and Starbucks main Frappuccino customer in the 18-24 year old woman, to have a taste of ‘style and
sweetness’, which would be the slogan of the campaign (Horovitz, 2010). This would align with Canadian
consumer tastes of liking sweet things (Strauss, 2013), and create brand awareness for both brands. This
would solve the business issue by positioning the differentiation that Target is pursuing while leveraging the
broad product mix that Target offers by having the upscale coffee shop within its stores. The organizational
issue could be solved by offering a public relations launch before the holiday season offering an apology for
all the inventory shortages that have happened in the past while outlining all the great things that have
happened so far. A sales promotion could be offered in apology, with a limited 5% discount offered which
could stack on top of the Red Card discount.
This recommendation was chosen based on 3 decision criteria (C1): profitability, implementation
time, marketing reach. Partnerships effectively maximize the amount profit considering the levitated costs
shared, is the quickest of alternatives to be ready to market, and can reach Starbuck’s market as well.

 

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Mistica  Consulting  –  Target  Canada  

A1a: Industry Size and Growth Rate calculation
Canadian  Retail  Industry  Size  (Colliers  International,  2012)

The Canadian retail industry size in 2011 was over
$450 billion, showing a 3.6% increase year over year.
With the Big 4, comprising of Ontario, Quebec, Alberta,
and B.C, being a large focus of Target Canada, this
segment will be the largest area of opportunity. 109 out
of 126 total stores will be concentrated in the Big 4
segment, with 51 being in Ontario, 25 in Quebec, 19 in
B.C, and 14 in Alberta (Target, 2012). The strong
Canadian dollar, industry growth, and strong Canadian
retail spending has led to an increase in international
retail interest (Colliers International, 2011).
A1b: Market Segmentation
Motor vehicles, food, and
bevrage are the largest among
the 11 different segments
listed (Statistics Canada,
2013). The following graph
outlays the markets that
retailers play in. Target will be
playing into the every market
except motor vehicles,
gasoline, and building
materials. With food and
beverage being one of the
largest segments, department
stores use grocery products as
trip drivers to increase sales for
other products (Strauss, 2013).

Misc.  
General   Retailers  
Sporting   Merch  
2%  
Goods  
13%  
2%  
Clothing  
6%  
Gasoline    
13%  

Market  Segmentation  
Motor  
Vehicles  &  
Parts  
23%  

Food  and  
Beverage  
22%  

Health  Care  
7%  

Furniture  
3%  
Electronics  
&  
Appliances  
3%  
Building  
Materials  
6%  

A1c: Note on industry life cycle
The industry of retail is starting to come to the end of its growth
phase. Some Canadian retailers are facing maturity issues and are
trying to refresh the business, however the industry as a whole appears
to be growing with the help of a strong Canadian dollar
(PriceWaterhouseCoopers, 2007). Target Canada though is in the
introduction stage and is leveraging the resources and its strong
presence in the U.S. (Target, 2012). From achieving LEED
certification to offering capital backing, Target Canada has just done a
soft launch in March 2013, indicating it is still in its Introduction Phase (Kopun, 2013). They are still
creating opportunity and expanding its business and sales have just started.

 

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Mistica  Consulting  –  Target  Canada  

A2: Key Success Factors
ŸStrong Brand Image: In order to differentiate the company from other competitors, establishing a
brand image in consumer minds link strong, favorable, and unique associations to the brand (Keller,
2008). In order to create consumer based brand equity, having these associations is critical for retailers
amidst a competitive landscape.
ŸCompetitive Pricing: Many players in the competitive retail market offer sales discounts and use
pricing comparatively to where their competitors are putting their prices are. Positioning based on
pricing ensures that companies stay competitive in terms of value (Shaw, 2013).
ŸCustomer Loyalty: Due to the Canadian consumer favouring the ability to shop for different items at
multiple stores, customer loyalty keeps customers having repeat purchases and drives the average sale
per customer higher for retailers (Shaw, 2012).
A3: Environmental Analysis
ŸCanadian government has to approve of impact of international expansion
ŸPopulation growth showing a 5.9% increase from 2006 to 2012, Canadian
consumer spending larger then the States, tariffs placed on international goods,
existing unions in place (Colliers International, 2012)
Socio-cultural ŸCanadians like having multiple places to shop, strong focus on convenience and
personalization in terms of location and shopping experience
(PriceWaterhouseCoopers, 2012)
Technological ŸSupply chain management systems are integrative and essential for success,
Database marketing and business insights are driven by loyalty programs which
can send personalize messages,
Legal
ŸDifferent store hours per province, high labour costs, higher union rates then in
the States, Quebec language requirements (PriceWaterhouseCoopers, 2007)
Environmental ŸCanadian consumers favour green products and companies who do business while
environmentally conscious (Campeau, 2013)
Political
Economic

Buyer Power
> High
Supplier
Power
> Medium
Barriers to
Entry
> High
Current
Competitors
> High
Substitutes
> High

 

A4: Porter’s Five Forces
ŸSwitching costs are low between competitors, profit margins are low and profit
depends on inventory turnover, Canadians like having multiple places to shop (The
Reinvestment Fund, 2011)
ŸStrong dependence on suppliers to deliver timely and accurately, existing retailers
are also retailers themselves such as Sobeys and Starbucks (Target, 2012)
ŸCanadian geography tough for logistics, strong retail presence existing already,
largest Canadian entry with 124 stores requires huge capital investment, Economies
of scale not as efficient as US, huge expansion requires government approval
(Strauss, 2013)
ŸStrong existing retail presence from Canadian and international competitors, many
US competitors are also expanding into Canada (Strauss, 2013)
ŸSubstitutes in the market are widely available and consumers are price sensitive,
switching costs are low (Favelle, 2008)

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Mistica  Consulting  –  Target  Canada  

 

A5: Strategic Group Map
Target is positioning itself as a one-stop shop
for Canadians (Margulis, 2011). By pursuing a
differentiated, broad cross-section buyer mix,
they offer an experience that no other retailer
can match while taking a little bit of share
from each competitor. The ripple effect that
their entry has made is that players are
pursuing a more differentiated approach since
Costco and Walmart dominate the low-cost
provider space, Target seeks to take the
differentiated space and separate itself from
Costco and Walmart as much as possible.
A6:

Competitor Analysis

Appliances

Clothing

Furnishing

Entertainment

Grocery

Baby Product

Pharmacy

Beauty

Target Canada

X

X

X

X

X

X

X

X

Canadian Tire

X

The Bay
Sears
Nordstrom
Crate and Barrel

X
X

BestBuy
Safeway
Loblaws
Costco
WalMart
Real Canadian
Superstore

X

Shoppers Drug
Mart

X
X
X
X

X

X
X

X
X

X
X

X
X

X
X

X
X
X
X
X
X
X

X
X

X
X

X

X
X
X
X
X
X

X
X
X

X
X
X
X

X

Target competes most with the department stores that offer multiple products. Because the food and
beverage market is so competitive, Target has limited their grocery selection and utilize it strategically as a
trip driver to drive profit for their other departments (Strauss, 2013).
A7: Market Share Calculation
Canadian  
Loblaws     Walmart   Shoppers  
As
of
2005,
the Retail Market is very competitive
Canada   Drugmart   Costco   Tire  
6%  
and fragmented. Companies fight for what limited
2%  
4%  
3%  
2%  
discretionary income consumers have in categories
Hudson's  
Sears  
Bay  
mentioned in A1b. Target’s competitors are
Canada  
Company  
2%  
fighting to maintain their small market share (Price
2%  
WaterhouseCoopers, 2007). Due to the similarities
Safeway  Inc.  
2%  
Other  
in competing markets, Target in the long run should
Best  Buy  
Retail  
be around 2-6% market share.
Staples   Canada  
Sales  
Market  Share  (2005)  
1%  
1%  
75%  
A8: External Analysis Conclusion
Target Canada is entering a market that is fiercely
competitive. Their entry will most affect the department stores that compete in the same market
segments due to the trends toward convenience and the need for a Canadian one-stop shop. In order to
 

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Mistica  Consulting  –  Target  Canada  

succeed in the market, Target should dominate a specific segment of the market to avoid warring with
others.
B1.

Company vision and mission/purpose

Mission “Our mission is to make Target your preferred shopping destination in all channels by
delivering outstanding value, continuous innovation and exceptional shopping
experiences by consistently fulfilling our Expect More. Pay Less® brand promise”
(Target, 2013).

The company mission does not translate to how the execution for Target Canada is rolling out. Due to
the higher labour and logistic costs, consumers are actually paying higher for Target products in
comparison and also are not having access to sufficient inventory (Strauss, 2013). Target’s mission is
failing, since the soft rollouts have made Canadians lower their expectations.
B2a.

Company’s value chain and sources of competitive advantage

ŸInvestment into IT management system, Third party managing cross-border and
transportation logistics (Target, 2013), Ambient and temperature controlled supply chain
(Shaw, 2011)
Operations
ŸDe-centralized decision making by Corporate and the Executive Team Leaders –
Logistics, Guest Experience, Sales, and HR (Target, 2013)
Distribution
ŸCanada Partners Online is a portal that manages the relationship with vendors,
distribution centres setup through Canada, Use 3 distribution centres (Target, 2013)
Sales &
ŸStrong presence on social media and already performing competitors in reach, usage of
Marketing
celebrity endorsements, traditional advertising (TV, radio, billboards), and experimental
marketing (Canada tour), strong President transparency (Target, 2013)
Service
ŸStrong focus on service through mission statement and organizational structure
(Strauss, 2013), Recruitment systems support service excellence (Target, 2013)
Product R&D – Two years of research into Canadian consumer insights and business intelligence, test
markets within Ontario and soft launches, market testing to Quebec differences (Strauss, 2013)
Human Resources Management – Competitive total pay package, Strong corporate culture, Organizational
structure supports HR (includes Talent Acquisition, Sourcing Specialists, HR Business Partners, Executive
Team Leader – HR, and Team Leader – HR) and empowers stores to handle issues (Target, 2013)
Supply Chain
Management

B2b.

Company’s value chain and sources of competitive advantage
Valuable
Rare
Imitable
Organizational
ŸProfitable
ŸSometimes ŸUnique
ŸExploitable
Strong Corporate Culture
ŸProfitable
ŸSometimes ŸUnique
ŸExploitable
Strong Brand Recognition
ŸRare
ŸUnique
ŸExploitable
Plenty of Canadian top talent ŸProfitable

B3:
Financial Analysis
Target Canada has capital expenditures totaling up to US $3.3 billion in Canada in 2013 that include all
expansion related costs, from obtaining leases from Zellers at US$1.5 billion, building 3 distribution
centres, renovating stores, building an IT platform, community donations, marketing, and hiring staff
(Shaw, 2013). However Tony Fisher, President of Target Canada, projects long term sales (with no
time specification) to be just $6 billion and have earnings per share (EPS) at $0.80.
Revenue (US)
Cost of Goods Sold (US) - Lease Buyout: $1.5 billion
Sales: $6,000,000,000
Corporate donation: $1 million
Other Costs: $1.799 billion

 

Net Profit:
$2,700,000,000

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Mistica  Consulting  –  Target  Canada  

With sales projected to be $6 billion, the current costs Target is incurring are higher then expected
(Shaw, 2013). This will negatively affect the projected EPS and Target’s growth, and also delay the
next advances Target will have once it decides to advance its ecommerce strategy.
B4:
SWOT Analysis
[Strengths]
- Strong brand recognition within Canada (Strauss,
2013)
- Easy ability to leverage US resources
- Strong corporate culture
- Environmentally focused with LEED certification
(Target, 2012)

[Weaknesses]
- Soft release has lowered expectations: climactic
buildup with no official wide-scale launch
- Stores look empty: replenishing issues (Shaw, 2013)
- Mission not fulfilled: prices are higher

[Opportunities]
- Regional empowerment for HR and marketing
opportunities
- Create Canada wide launch-party once rollouts are
complete
- Rollout ecommerce retailing to compensate for
inventory shortages

[Threats]
- Competitors undercutting prices for greater market
share
- Global competitors entering the foray (Colliers
International, 2012)
- Rising gas prices drive input costs (Abma, 2012)

B5:
Corporate Social Responsibility & Ethics
Target follows a business model that supports corporate social
responsibility (CSR) through a triple bottom line approach. They support
their people through events such as the December 6th, 2012 Day of Caring at
PEOPLE  
headquarters, and also through organized volunteer days. They do business while
considering their environmental impact by investing over $10,000,000 into
LEED gold certification, which includes sustainable buildings that conserve
Give  with  
energy, water, and utilities. They also take 5% of profit to local
Target  
Canada  app  
communities. On top of this, they have also organized a popup store
featuring Jason Wu, a celebrity stylist, which had 1,500 guests buy
PLANET  
products. The $60,000 profit was all donated to United Way
PROFIT  
Toronto. Lastly, through the ‘Give with Target Canada’
LEED  Gold  
certiXied  
Facebook marketing campaign, Target donated $1,000,000 to
Popup  
stores  
organizations that the community voted on (Target, 2013).
5%  
community  
Target also decided to favour Zellers employees after they were laid off, an ethical
fund  
solution to the outrage they were receiving when consumers heard about Target’s
Canadian entry (Kopun, 2012).
Volunteer  
Days  

Community  
Hours  

CSR  

B6:
Internal Analysis Conclusion
Target Canada has some supply chain management and logistical issues it needs to iron out in order to
provide its customers a sufficient amount of inventory to fully astound them and expect more. Once
they are ready, an opportunity to have a cross-Canada hard launch is there.
C1:

Evaluation of Alternatives (Ranking out of 5, with 5 being the ideal amount)
Profitability
Implementation Time
Marketing Reach
Alternative 1 – Holiday Focus 3
3
3
Alternative 2 - eCommerce
4
3
5
Alternative 3 – Partnership
5
5
5
 

Total
9
12
15
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Mistica  Consulting  –  Target  Canada  

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