Target Canada failed spectacularly last year when the Minneapolis company's Canadian subsidiary filed for bankruptcy. Target quickly closed the doors on all 133 Canadian locations — at least those that it had even bothered opening.
The news inspired dozens of speculative explanations, and will be a college business course case study of what not to do for years to come.
But it wasn't until now that we got a firsthand look at the slow-motion shipwreck that lost billions of dollars for Target. In an exhaustive piece, relying on dozens of interviews with former employees, Canadian Business magazine has given the definitive account of Target's short, brutal life in that country.
Target set sights on an untapped market that it had long dreamed of invading. The discount department leviathan wanted to take one giant leap into Canada. Canadians are just like us, they figured. They need Folger's and lawn chairs, and Tylenol, and they ought to have the option of getting all that crap in one place, just like we do here in America.
But Target's Canadian venture was flawed from the start, the magazine reports. The biggest single mistake started with the downfall of Zellers, a Canadian department store chain that collapsed when Walmart moved in and undercut its prices. Corporate leaders at Zellers knew Target was interested in bringing its business across the border.
Zellers was looking to sell real estate, and Target wanted to buy it. All of it. In 2011, it struck a $1.8 billion deal to buy leases on 124 buildings across the country. Rather than edging in slowly and figuring out what worked in Canada, Target bet big.
CEO Gregg Steinhafel was the architect of the ballsy investment. A 30-year veteran with the company, Steinhafel had seen the company through tough times, including the U.S. recession. CB magazine reports times were "palpably exciting in Minneapolis," with Target corporate employees hoping to get picked to help establish its brand in a new land.
The company also recruited a bunch of fresh-faced college grads, hiring for its "fast, fun, and friendly" culture instead of expertise in retail planning. Those bright-eyed kids struggled with a new data-entry system. Midway through the rollout, it was determined that about 30 percent of orders being placed with vendors were incorrect. (In the U.S., Target aims for a one or two percent error rate.)
Everything stopped for more than a full week, as staff combed back to find mistakes. But not to fix them: That, Target outsourced to India, bulking up its data-entry offices there to make up for lost time on the cheap.
When Target opened its first three stores in Ontario in February 2013, many shelves were still empty. Back-order stuff was still being processed. Customers were confused.
While its stores were only half-full, its distribution centers were overwhelmed. Target based its estimates for Canadian consumption on American models. When customers didn't flock to stores in the right numbers, distribution sites overflowed, with trucks parked outside warehouses that couldn't fit any more items. Target lost millions on markdowns that were necessary just to get items out of stores...so they could be replaced by merchandise that was backing up in its warehouses.
Target Canada lost $941 million that first year.
When CEO Brian Cornell, formerly with Pepsi, visited Target Canada in mid-2014, distribution issues had been ironed out. The shelves were full. But the aisles were empty. Target had figured how to get products into its Canadian stores, but not Canadians. The brand meant nothing to them, and the stories of its clumsy rollout were too much to overcome.
Losses would've been significant if the corporation had bought and opened 10 or 20 test sites. With so large a gamble, the money hemorrhaged at a catastrophic rate. By the time it filed for bankruptcy, Target Canada had spent $7 billion, and had no expectation of turning a profit before the end of the decade.
More than 17,000 people lost their jobs. Sadly, one of them wasn't Gregg Steinhafel. He was long gone by then, but for the wrong reason. Steinhafel was forced out as CEO in February 2014, after he was made the public fall guy for a widespread data breach of American credit card customers. That short-term embarrassment had come to overshadow a much larger, longterm mistake he'd launched in Canada.<!—————EndFragment—————>
Steinhafel declined to talk to Canadian Business, which notes that it's not clear what he's up to now. He's got a LinkedIn page, where he lists his career as "retail professional." He, unlike Target Canada, might get back on his feet someday. Not that he needs to. When he took the plunge, Stenihafel got a $61 million golden parachute to cushion his fall.
After all, even when CEOs lose, they still win.