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Off Target: What’s going wrong for America’s favourite retailer?

By Toby Southgate

February 5, 2015 | 5 min read

Everyone knows the red bullseye. Target is an iconic and instantly recognisable brand in North America, with something like 97 per cent awareness. It’s a great American success story: originally a family business known as the Dayton Dry Goods Company, Target Corporation now employs more than 350,000 people, in nearly 2,000 stores, and sits comfortably in the top 50 of the Fortune 500 with annual revenues at more than $70bn (2013).

For decades it seemed the brand could do no wrong. Target’s reputation was built on a number of key brand pillars – commitments to consumers that shopping at Target would be a fundamentally different experience to shopping at Walmart. Stores would be bright, airy, and wide-aisled. Ceilings would be dropped so you wouldn’t feel like you were in a warehouse. Unlike Walmart, Target has never sold firearms or cigarettes.

Target doesn’t lead with communications based on discounting and low prices. It has always committed to trend or fashion-forward merchandise and products: Target has partnered with Isaac Mizrahi, Zac Posen, Liberty of London, Missoni…it saw the value in connections with the fashion industry before H&M.

But all has not been well. At the end of 2013 Target revealed a massive data breach, where the credit and debit card details of nearly 100 million customers were stolen over the post-Thanksgiving/pre-Christmas period. Target dropped earnings forecasts by 15 per cent, and estimated the cost of the breach at $148m. And just last month, as well as the truly awful ‘Walk of Shame’ lawsuit where the family of a Target staffer who committed suicide is suing for damages, Target announced its most significant backward step so far. Target Canada is bankrupt, and winding down under creditor protection.

After entering the Canadian market to great fanfare, taking over more than 189 Zellers stores and re-opening 125 of them as Target stores in 2013, the organization announced its plans to close every single one over the coming months. The parent company has written-down losses of $5.4bn. 17,600 people will lose their jobs.

There are wide-ranging views on why the brand has failed in a key market, and of course the fact of surprise failure has led to a glut of analysis and post-rationalisation. It seems to us that one fundamental explanation has been overlooked so far. Target failed deliver on its core promise of ‘Expect More. Pay Less’. Supply chain and distribution issues grew beyond teething challenges to create ill feeling and ongoing negative experiences. Consumers saw empty shelves. Whatever you might expect as a consumer, you can’t pay any price if the shelves are bare.

The original rationale for expansion is clear. The Canadian economy seemed full of opportunity when Target announced its plans in 2011. The financial sector was in good health, consumer spending was high, and the brand was familiar. Target itself estimated that 10 per cent of Canadians already crossed the border into the United States to shop at their stores.

But four short years later, things are different. The federal budget was delayed, largely as a result of the slumping oil price. With that major economic contributor suffering, consumer spending is down. CBRE, the global real estate firm, released a report earlier this year showing that whereas Canada was the sixth most desirable market for retail expansion in 2012, by 2014 it didn’t even make the list.

Can the brand itself recover? Despite these major setbacks Target still has a heart, and great potential. Its smaller-format City Target and TargetExpress stores have been a hit in the United States, and form the majority of its 2015 expansion plans. This demonstrates an ongoing affinity with core consumers and an appetite to serve them in new environments and locations.

Target made a mistake in Canada, a major and costly one. The deal it pursued to take it into this new market was overly ambitious and flawed in construct. But Target remains a great brand and a great retailer. It will recover. And it will do so by getting back to consistently delivering on that core promise – the commitment that customers can ‘expect more and pay less’ when they call through the doors of a Target store.

Delivering that experience to its customers, time and again, will repair reputation and see the business back to growth.

Toby Southgate is CEO, Americas at Brand Union. He tweets @tobyrolla

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