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Target’s Huge Fall and Exit from Canada: Five Leadership Lessons

February 9, 2015
Wile Coyote There’s no question, or doubt, that reaching the pinnacle of a top leadership job in the corporate world, or the public sector for that matter, is for the most part something of which to be proud. Leading organizations in today’s volatile global economy and geo-political roller coaster of non-stop events is definitely not for the squeamish. It requires personal smarts, intense focus and immense concentration of effort to guide companies and public sector organizations through unrelenting change.

Your correspondent during his three decades with the Government of Canada, working in two provinces and for a variety of federal departments and agencies, experienced some excellent top leadership from deputy ministers (equivalent to deputy secretaries in the United States government). But there were also many mediocre and, in some cases, incompetent top leaders, and not just at the deputy minister level but those at the next two levels down.

Nothing surprising here.

The private sector has its abundant share of incompetents sitting in the corner office on the cloud-grazing suite level. The public sector takes a lot of flak, often unnecessary, from the media and the public. Your correspondent’s view is if you screw up when you’re leading an organization you have only to blame yourself.

Dodge City And that brings us to the focus of this post: Target’s get-out of-Dodge from its disastrous showing in Canada, something that will be studied undoubtedly in Canadian business schools in the future. But first, a little background on Target Corporation.

The company was founded in 1902 in Minneapolis, Minnesota, by George Dayton as Goodfellow Dry Goods Company, though he changed Goodfellow to Dayton in 1903. In 1911 he shortened the name to Dayton Company. It wasn’t until 1962 when the company, after seeing the US being part of two world wars and the Great Depression, opened its first Target store in 1962. The company grew steadily during the following decades. In January2015 Target achieved infamy when the media reported that Target has a “Walk of Shame,” where any employee caught stealing is arrested and handcuffed, only to be paraded through the store in front of employees and customers. One employee who was arrested committed suicide, prompting a lawsuit from Target employees.

Next to the juggernaut Walmart, Target is the second largest discount retailer in the US. And it’s not only proved to be very popular with American shoppers but also with Canadian cross-border shoppers, one of Canada’s national extra-curricular activities.

So it was with much consumer excitement and media hyperbole that the arrival of Target to Canada took place in 2013 (though the acquisition process began in 2011). Zellers, a cross-country discount chain owned by the Hudson’s Bay Company, shut down as Target assumed its 189 leases. Not all of the locations would be converted to Target stores, and in March 2013 the first converted store opened to much fanfare. Out of the 189 former Zellers stores, Target was to open 133 stores. However, not all of the stores opened (such as a two-level store still undergoing retrofitting in a large mall 10 minutes from your correspondent’s home).

Target Without any advance warning Target announced on January 15, 2015, that it was closing all its stores and exiting Canada, stating that it would not be able to turn a profit until 2021. It declared bankruptcy, and soon after a liquidation sale began in early February, managed by a firm specializing in this field (Alvarez & Marsal). Target employees, some of whom had quit fulltime jobs to work for this American retail giant and many others who had quit parttime jobs, were shocked and dismayed.

In the process 17,000 Canadians lost their jobs. What hasn’t been adequately reported in the media are the hundreds of suppliers who are left holding the bag, futilely waiting for what’s owed them, not to mention the landlords of malls who now have to scramble to find tenants for their large anchor store footprints.

Target Canada lost $2 billion, a whopping sum in such a short period of time. The company expects to write-off $5.4 billion, with the dissolution process costing an anticipated $600 million. And CEO Gregg Steinhafel, who was with the company 35 years, was replaced with an outsider, Brian Cornell.

Cornell assumed the CEO role in December 2014. His first order of business was to tour Target’s stores across Canada without any PR people or aides. He quickly realized, upon seeing near-empty store shelves just prior to Christmas, that Target had a huge problem. In sizing up what it would take for Target to recover and make a profit, taking into account Canada’s slowing economy, Cornell made the decision to shut down its Canadian operations.

Expert Why did Target fail?

If you fall prey to the endless analyses of so-called retail experts and other pseudo experts, you may as well ask, “why is the sky blue?”

But the answer at a corporate strategic level, in contrast to at the tactical, micro level, is not that complicated.

Yes, it’s a valid comment that Canadian shoppers, after years of visiting Target stores in the US, had become accustomed to the product variety, quality and prices available south of the border. However, it’s important to keep in mind that most Canadians had not been to a Target store. What helped inflame the expectations of Target’s arrival to the Great White North was the Canadian media, which went into true hyper-drive in the months leading up to Target’s first store opening. Your correspondent and his wife, both of whom had only been briefly in one Target store in Bangor, Maine, several years ago, never had any great expectation with the company’s arrival in Ottawa where they live. Target, to them, is–was–just another discount chain.

Target’s collapse can be summed up in two words: Arrogance and laziness. Target assumed that its huge success in the US would be easily transferred to Canada. Target didn’t do its homework. Sure, the company had huge distribution problems, leaving store shelves understocked (a major curse in retail). But the company owns the problem of product selection, quality and pricing, and the overriding issue of corporate communication. Target knew full well of the expectations of Canadian consumers and the endless business reporting by Canadian media.

Granted, Canada’s retail sector is a pipsqueak compared to the United States. Canada’s population of 35 million people pales considerably to America’s 315 million, where some US retail regional chains are larger than national chains in Canada. The state of California’s population is 38 million. New York’s metropolitan area is about half of Canada’s population.

And there have been a myriad of other reasons given for Target’s failure in Canada, from the size of retail market (though admittedly with growth potential compared to the over-saturated US market) to Canadian taxes and import duties to unreasonable expectations (read that as naïveté) by Canadian consumers.

Graphs In contrast to the apparent arrogance and laziness of Target’s top leaders, who in short blew their opportunity to make a strong entrance to Canada’s retail landscape, let’s rewind just over 20 years to when another prominent discount retail chain shut down, only to be subsumed by an American behemoth.

Woolco Department Stores was founded in 1962 in Columbus, Ohio, by the F.W. Woolworth Company. Despite the crowded US discount market, Woolco had greater success in Canada, with 160 stores at the time of its dissolution when it was purchased by Walmart Canada in 1994 from the F.W. Woolworth Company (the US Woolco stores were acquired 12 years earlier).

Walmart was dealing with roughly the same number of stores as was Target when both entered Canada. However, Walmart has been hugely successful in Canada. And yes, it also faced certain expectations from Canadian consumers. Indeed, it would be fair to say that the level of positive excitement was not the same as Target, 20 years later, because of Canadians’ on-and-off neurosis about American corporate takeovers.

When Walmart opened its converted Woolco stores two decades ago they were fully stocked and with the promised low prices. Sure, Canadians complained about their money going to an American giant retailer (though Woolco had also been US-owned) and that Walmart was aiming to put its competitors out of business. But that was a certain level of paranoia prevalent among a segment of Canadians.

Here’s the bottom line when it comes to leading companies in today’s turbulent marketplace:

– Know your market
– Research it endlessly
– Never presume you have a lock on a segment of it.

The irony left after the detritus from Target’s exit from Canada is that Zellers’ brand will still have a foothold, albeit very small, in the Canadian retail landscape.

Below are five key leadership lessons that will help you, regardless of level in your organization, to adapt to a new context and market:

1) Practice Humility – Admit that you don’t have all the answers.

2) Bring Together your Best People – And be sure to listen to them.

3) Explore Opportunities You Would Usually Ignore – Wearing blinders will undermine your organization’s ability to seize growth opportunities.

4) Partnerships are where it’s at in Today’s Economy – Don’t run away from collaborating with supposed competitors.

5) Be Open to Outcome, Not Attached to it – This will enable your capacity to adapt to unexpected events.

Canada’s retail sector will soldier on without Target. Indeed, it won’t miss a beat. Target has run back to Minnesota with its tail between its legs, leaving thousands of former employees in a plight, not to forget suppliers and mall owners. The company’s insolvency application to the court, in your correspondent’s view, was tantamount to irresponsible leadership and cowardice. But that’s how it rolls in the corporate world.

Live the above five leadership lessons.

Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.

Jack Welch

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