Hitting the Target But Missing the Bull's-eye

 
By: Chris Lund

Let's stop piling on Target. Yes, the Canadian launch has not matched expectations, but it's a smart, savvy, successful retailer. It'll get it right. In the meantime, perhaps we can learn a few things from its story.

Perhaps we were all expecting to be introduced to Marilyn Monroe, but Norma Jeane Mortenson showed up. It's the same person but we're disappointed. We were promised Marilyn in all her glory, and instead were introduced to Norma Jeane in jeans. She's the same person, but not the same personality.

This is analogous to Target's Canadian launch. Canadians were expecting exactly the same experience as their American one, and as a result, were disappointed. Target did little to manage their expectations. In fact, it fostered even greater ones.

Target is one of America's most admired retailers. Its success is grounded in its founder's vision to "combine the best of the fashion world with the best of the discount world". Doug Hudson set out to create a quality store with quality merchandise and he succeeded.

This brand position and promise is captured in the tagline "Expect More. Pay Less". Delivering against this promise has held the retailer in good stead. Target operates 1,683 stores in 48 American states, racks up $73 billion in sales annually, and employs 360,000 team members. And it gives back. Target donates 5% of its profit, which equates to $4 million per week.

In an attempt to fuel further North American growth, Target, like Walmart and others before it, looked north to Canada. In March of 2012 Target embarked on the largest store launch in Canadian retail history. Like Walmart's launch, it was an ambitious one. Target acquired Zellers stores and planned to open 130 locations by 2014. Back in 1994, Walmart had acquired 122 Wolco stores.

Target has had a modicum of success in Canada, but not what it or others expected. According to the Globe and Mail, "the retailer generated sales of $333 million in its third quarter at a gross margin of 14.8 per cent less than half of the company-wide margin of 30 per cent". The poor Canadian results are negatively affecting the company's overall financial performance.

The pre-launch hype created an implied brand promise that Target found difficult to keep, and by fueling this hype it also encouraged competitors to aggressively buttress their customer bases.

One wonders if Target would enter Canada differently knowing what it knows now. Would it fuel the hype? Would it pique the interest of its competitors? Would it conduct a soft launch given the pre-launch plan?

Fueling the Hype

Prior to entering the Canadian market, Target was in an enviable position. It was well perceived by Canadians who had shopped at Target in the U.S., and it decided to exploit this pent up demand. This created heightened consumer expectations and mobilized competitors to defend aggressively.

The Consumer

Target was a known quantity in Canada prior to its launch. Canadians who shopped at Target in America loved it. They loved the combination of the best of the fashion world with the best of the discount world. When they shopped at Target in the U.S., they weren't disappointed. They expected more and paid less, certainly less than they would in Canada. Target kept its promise.

These consumers expected the same in Canada. Target's "Listening Tours" suggested Canadians wanted a similar experience to the one they had found in America. They expected more and wanted to pay less.

Understandably, but perhaps erroneously, Target fueled Canadians' expectations by:
- pairing up with Quebec pop singer Mitsou Gelinas during Montreal Fashion Week
- transforming the Templar Hotel into the Target Hotel during TIFF
- holding a competition with TFI New Label for young designers
- announcing a partnership with Roots
- unveiling a pre-launch commercial during the Oscars
- creating a pop-up store in Toronto's entertainment district to feature an exclusive offering from Canadian designer Jason Wu

All of these initiatives reinforced the brand's fashion credentials, drove awareness, and created excitement and anticipation; but they also worked against a soft launch. The brand had ostensibly been launched. The promise had been made, implied or otherwise, prior to any store opening.

The stage was set. According to KubasPrimedia, 61% of Canadians planned on shopping at Target, and 90% who had visited an American Target store in the past year planned to shop at Target Canada.

The Competition

Target's pre-launch hype not only garnered the attention of Canadian consumers, it mobilized competitors to defend long before a store opened.

The mass merchandise market is a low growth market, so Target's primary source of volume was to steal competitive share. Did Target underestimate Canadian competitors? Did it minimize the fact that the hard discount category was already crowded with Walmart, Winners, Marshalls and Joe Fresh? Did it underestimate the steady reserve of Canadian retailers?

Pundits suggested that Target was forecasted to steal $855 million in sales from Canadian Tire but Canadian Tire didn't sit by idly watching its business deteriorate. Rather, it played up its national heritage by marking a big birthday and touting its Canadian roots. It began selling major appliances, changed its loyalty program, and reconfigured its living category. It retrained store staff and introduced new products, accessories, and technologies. It also shifted some of its advertising spending to focus more on women.

Canadian Tire wasn't the only company to defend its franchise. Walmart was expected to remodel or open 73 Canadian stores and cut prices.

Competitors defended their franchises more vigorously than they would have had Target not embarked on such a lively pre-launch public relations plan.

Post-launch

Target has not lived up to the hype. Norma Jeane showed up in jeans rather than Marilyn in all her glory. The brand failed to deliver on its promise. It didn't matter that the promise had been implied rather than explicit. Consumers were underwhelmed.

The pent-up demand created during the pre-launch period exceeded Target's ability to deliver. During the three-store soft launch it had trouble keeping shelves stocked as customer interest and demand exceeded the retailer's expectations. Consumers took to social media—a.k.a. word of mouth on steroids to voice their complaints about empty shelves and higher than expected prices.

Customers got less than they expected and paid more. Target broke its promise.

The Globe and Mail surveyed 300 readers and found their reactions to the Canadian Target stores were not overwhelmingly enthusiastic. They felt the stores were similar to the Zellers that had previously occupied the space, and they were disappointed to find that Target Canada did not carry the same products or prices as its American counterpart.

-        - Of the 42% of the survey respondents who had been to a Canadian Target, only 27% said they were satisfied with the prices compared to other Canadian retailers
- Less than half (41%) said they were satisfied with the level of service
-
Only 37% were satisfied with the product selection

A Kantar study found that the price of Target Canada's overall basket was 24 cents higher than Walmart's. Target did not keep the pay less promise.

Traffic at Target stores has slowed, as Canadian consumers perceive prices are too high. Forum Research found that Target has failed to live up to customer expectations due to higher than perceived prices and out-of-stocks. Only 27% of respondents were very satisfied with Target, down from 37% in April. In contrast, 62% were very satisfied with Costco and 40% were satisfied with Walmart.

So what can we learn from Target's Canadian launch? These are not new lessons, but they are well worth repeating and relearning.

Lessons Learned

  1. Listen to consumers, really listen to consumers.

    Target's own "Listening Tours" suggested Canadians wanted a similar experience to what they had found in the U.S. Did Target pay enough attention to this? Did it fully appreciate the strength of the latent brand promise in Canada? Did it fully understand the depth of the emotional connection Canadians already had with the Target brand?

    In hindsight, Target should have listened better.

  2. Understand the expectations.

    Target added fuel to the expectation fire. All the pre-launch activity enhanced Canadians' desire to expect more and pay less. They were expecting Marilyn and got Norma Jeane.

    In hindsight, Target should have monitored consumers' expectations either through continuous tracking or social listening.

  3. Realize there is no such thing as a soft launch for a big, established brand.

    In this social media age, where word of mouth travels faster than we can talk, there is no such thing as a soft launch. Whether it's three stores or 30 stores, a launch is a launch. Any operational miscalculations will go viral instantaneously.

    In hindsight, Target should have treated the soft launch as the real thing.

  4. Keep the promise.

    A brand is a differentiated promise of value that consumers have an emotional connection with. Target created and implied the promise of "Expect More. Pay Less." In the eyes of Canadians, it has not fulfilled this promise.

    It will be hard to win on price in a mature hard discount market, especially given a limited product assortment in Canada. But Target can win on the experience by offering a product lineup more akin to what consumers are accustomed to finding in the U.S. Featuring brands like Michael Graves and Philippe Starck adds authority to its offer.

  5. Don't flag your story to competitors too early.

    Target's Canadian launch was no secret. The pre-launch hype mobilized its competitors to aggressively defend their franchises.

    In hindsight, Target should have held its cards closer to its vest.

Target will be successful in the long haul. While it competes in an increasingly price competitive category, it cannot profitably compete on price alone. Target will win over Canadian consumers if it focuses on the experience part of its promise by featuring authority brands and selling them in clean, bright stores. It can further differentiate itself by communicating its enviable Corporate Social Responsibility initiatives. Target will win if it gives Canadians a reason to expect more.