Target Corporation

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Students will read, and prepare reports on case study, identifying the problem presented in the case and offering a solution. Effective case analyses will utilize text material and management concepts being studied to help generate practical solutions. The case report should be no more than three pages in length.

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TARGET CORPORATION: THE CANADIAN DECISION1

Tarika Menezes wrote this case under the supervision of Professor David Wood solely to provide material for class discussion. The 

authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised 

certain names and other identifying information to protect confidentiality. 

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the 

permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights 

organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western 

University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. 

Copyright © 2015, Ivey Business School Foundation Version: 2017-02-03 

Brian Cornell, Target Corporation’s (Target) recently appointed chief executive officer (CEO), needed to 

make a difficult decision: should Target continue operating in Canada? After the launch of 133 stores 

since 2013, Target Canada was plagued with operational challenges, poor sales and intensifying 

competition and had reported deep losses amounting to over $1.36 billion.2 It was evident that the 

company needed to change direction. It was now December 29, 2014 and with the sales report from 

holiday season now available, Cornell considered his alternatives. 

TARGET CORPORATION

Target was first launched in 1902 by George D. Dayton in Minneapolis, Minnesota under the name 

Dayton Dry Goods Company (Dayton). The company quickly developed a brand for dependable 

merchandise, fair business practice and a generous spirit of giving. Dayton developed a chain of 

department stores with the vision to “combine the best of the fashion world with the best of the discount 

world. A quality store with quality merchandise at discount price and a discount super market.”3

Shopping experiences would be fun, delightful and welcoming to the entire family with wide aisles, easy-

to-shop displays, fast checkout and ample well-lit parking.4

In the 1960s, Dayton moved away from being a department store and adopted the strategy that some 

considered risky: to be a mass-market discount store catering to value-oriented shoppers seeking a higher

quality experience. Within a few years, the organization transformed into one of the largest discount store 

chains in the United States under the name Target and had more than 75 stores. In 1967, after an IPO, the 

company unveiled its brand, “Expect More. Pay Less.”

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For the exclusive use of M. Aljarbou, 2019. W15334 TARGET CORPORATION: THE CANADIAN DECISION 1 Tarika Menezes wrote this case under the supervision of Professor David Wood solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2015, Ivey Business School Foundation Version: 2017-02-03 Brian Cornell, Target Corporation’s (Target) recently appointed chief executive officer (CEO), needed to make a difficult decision: should Target continue operating in Canada? After the launch of 133 stores since 2013, Target Canada was plagued with operational challenges, poor sales and intensifying competition and had reported deep losses amounting to over $1.36 billion.2 It was evident that the company needed to change direction. It was now December 29, 2014 and with the sales report from holiday season now available, Cornell considered his alternatives. TARGET CORPORATION Target was first launched in 1902 by George D. Dayton in Minneapolis, Minnesota under the name Dayton Dry Goods Company (Dayton). The company quickly developed a brand for dependable merchandise, fair business practice and a generous spirit of giving. Dayton developed a chain of department stores with the vision to “combine the best of the fashion world with the best of the discount world. A quality store with quality merchandise at discount price and a discount super market.” 3 Shopping experiences would be fun, delightful and welcoming to the entire family with wide aisles, easyto-shop displays, fast checkout and ample well-lit parking. 4 In the 1960s, Dayton moved away from being a department store and adopted the strategy that some considered risky: to be a mass-market discount store catering to value-oriented shoppers seeking a higher quality experience. Within a few years, the organization transformed into one of the largest discount store chains in the United States under the name Target and had more than 75 stores. In 1967, after an IPO, the company unveiled its brand, “Expect More. Pay Less.” Target provided everyday essentials and fashionable differentiated merchandise at discounted prices through large-format general merchandise and grocery discount stores, as well as an online business. In addition to national brand products, the company sold merchandise under many owned brands (such as Archer Farms, Merona and Up&Up) as well as exclusive partnership brands (such as Sonia Kashuk, C9 by Champion and Cherokee). By the end of 2014, the U.S. business hired around 347,000 employees and owned 1,793 retail outlets and a network of 40 distribution centres (DCs). Target and SuperTarget stores, which spanned an average 45,000 retail square feet, offered a full line of merchandise and were mainly This document is authorized for use only by Mshal Aljarbou in Management Spring '19 taught by MOLLY BURKE, Dominican University - Illinois from Jan 2019 to Jul 2019. For the exclusive use of M. Aljarbou, 2019. Page 2 9B15M057 located in suburban areas.5 Target also leased in-store space to Starbucks and Pizza Hut and generated revenues from other complementary amenities, such as Target Pharmacy. 6 The company competed with various retailers, including traditional and discount general merchandise retailers, apparel retailers, Internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce. Target aimed to deliver a superior shopping experience by harnessing its strong supply chain and technology infrastructure, devotion to innovation ingrained in the organization and culture and a disciplined approach to managing its current business and investing in future growth. 7 In 2013, Target, the second-largest general merchandise retailer in the United States, generated over US$72.5 billion in revenues, US$4.2 billion in earnings before interest and taxes (EBIT) and US$1.97 billion in net earnings (see Exhibit 1). 8 Its retail market share rose 0.1 per cent to 2.5 per cent in 2013 while, over that same time period, its biggest rival, Walmart, experienced a 0.2 per cent growth to 11.6 per cent (see Exhibit 2). 9 Compared to other U.S. industry leaders, Target had suffered poor sales growth (see Exhibit 3). While its Canadian business struggled, the U.S. business had faced many challenges, including a highly competitive e-commerce environment, a growing big-box retailer trend towards smallformat stores and a large data breach. TARGET.COM Target’s e-commerce business, launched in 1999, offered customers a wide range of general merchandise, including complementary assortments, such as extended sizes and colours, that were only available online. The website, Target.com, was launched with a keen eye to innovation and design as the company collaborated with over 75 designers to design exclusive brands. As e-commerce grew increasingly competitive in the United States, Target strove to innovate in mobile and online shopping, allowing customers to shop wherever, whenever and however they liked. For example, during the holiday season, customers could use Target’s Webby Award-winning mobile app to scan the QR code of top-selling toys’ codes in-store, buy the product on their phones and have it shipped for free, even if the toy was sold out in stores. The company further innovated in social media by mixing movie-watching and shopping with starstudded short films where customers could watch the movie while simultaneously adding items to their Target.com card. 10 In the United States, competition had stiffened in the e-commerce industry. In 2013, Target.com captured an e-commerce market share of 2.1 per cent compared to Walmart’s market share of 9.2 per cent. 11 The industry was growing more competitive at a time when the number of online shoppers was expected to jump from 191 million in 2013 to 215 million in 2018. 12 CITYTARGET AND TARGETEXPRESS In the early 2010s, many big box retailers moved to a small store format as their large suburban stores struggled. Attempting to pursue a new source of growth and to revitalize Target’s “cheap chic” brand, the company announced the launch of a new small-format store strategy. In 2013, Target launched five CityTargets in large U.S. cities such as Chicago and San Francisco. These small-format stores, roughly 40 per cent the size of average Target stores, focused on attracting urban office workers, residents and students with tailored merchandise mixes and unique merchandising strategies. 13 Compared to Target and SuperTarget stores that offered full lines of general merchandise, This document is authorized for use only by Mshal Aljarbou in Management Spring '19 taught by MOLLY BURKE, Dominican University - Illinois from Jan 2019 to Jul 2019. For the exclusive use of M. Aljarbou, 2019. Page 3 9B15M057 these city locations aimed to offer urban populations the convenience of a one-stop shop with affordable fresh food, apartment essentials, on-trend fashion and exclusive designer brands. As city dwellers compose 13 per cent of Target shoppers and shop at a Target 2.3 times a month (compared to the 1.8 times for a suburbanite), the urban stores helped Target pick up business from those customers who might skip store visits because of the time required to commute to the suburban Targets. 14 The new CityTargets generated healthy traffic, and the company launched three more stores in 2014. In late 2014, the company announced plans to launch Target’s biggest CityTarget location in Brooklyn, New York in 2016. At the same time, Walmart publicized the launch of 200 more urban Neighbourhood Market grocery stores over the course of 2015, bringing the total number of Walmart small-format stores to around 700.15 Target also tested the small-format store concept by launching one TargetExpress store in Minneapolis in July 2014. 16 This store was approximately one-sixth the size of Target stores and offered an even more limited assortment for convenient purchases. Target was exploring opportunities to bring TargetExpress stores to other major cities across the country beyond 2015. DATA BREACH Target offered customers debit and credit card services through a REDCard loyalty program that gave users a 5 per cent discount in-store and online. However, between November 27 and December 15, 2013, Target experienced a data breach when an intruder accessed and stole payment card data through malware installed at the company’s point-of-sales systems. Approximately 40 million credit and debit card accounts were affected, and the contact information for up to 70 million individuals was stolen.17 Target’s data breach expenses neared US$148 million, and the company showed no signs of recovery as sales in the third quarter of 2014 continued to lag 3.8 per cent behind the previous year. 18 Cornell wondered whether the company had completely recovered from the crisis. TARGET CANADA Target Canada Launch The launch of Target Canada was considered by some as “an impossibly tall order.” 19 The company invested over US$4 billion in its Canadian operations as it rolled out 133 stores and three DCs, and took on 17,600 employees within the span of two years. Target indicated its intent to expand into Canada long before its actual opening. In 2011, Target Canada announced the purchase of approximately 220 store leases from the now-closed Canadian discounter Zellers for $1.8 billion. 20 Shortly afterwards, Fairweather Ltd., which owned the Canadian brand Target Apparel, filed a lawsuit against Target for trademark infringement. The dispute was settled in 2012 for $250 million. 21 To renovate the Zellers stores with branded Target interiors, Target Canada invested approximately $10 million to $11 million into each store. 22 As the leases required stores to be operating within one year, the company launched 125 stores across the country in 2013, in cycle openings of approximately 24 stores every two months, as well as the three DCs. The Canadian business expected revenues of $1 billion in the first year and annual revenue of $6 billion by 2017. Target’s arrival in Canada was highly anticipated by consumers and competition alike. This document is authorized for use only by Mshal Aljarbou in Management Spring '19 taught by MOLLY BURKE, Dominican University - Illinois from Jan 2019 to Jul 2019. For the exclusive use of M. Aljarbou, 2019. Page 4 9B15M057 Consumers Canada’s close proximity and cultural similarities seemed the most likely growth opportunity for Target, but key characteristics differentiated Canadian consumers from their U.S. counterparts. Although the U.S. population was nine times larger than the Canadian population, the latter was growing twice as fast at a rate of 1.3 per cent. However, in total, Canadians spent approximately one-tenth of total U.S. retail spending, especially as they were saddled with record high household debt that limited their discretionary spending. 23 Americans spent an average of $17,900 per year in retail outlets compared to the average Canadian consumer who spent $17,000. General merchandise stores were more popular in the United States than in Canada as U.S. households spent almost US$600 more at these stores than Canadian households. Canadians also budgeted more for nondiscretionary items while Americans dedicated more of their budget to discretionary purchases. In 2012, products were priced an average 14 per cent higher in Canada compared to the United States. 24 Given these differences, Target had an opportunity to introduce a broad assortment of low-priced merchandise to the Canadian market, but its success hinged on the company’s ability to address these uniquely Canadian features. Even before the launch, many Canadians were very familiar with the Target brand. Canadian consumers often shopped across the border, where they visited retailers without a Canadian presence (including Target). By 2012, total cross-border spending rose almost 10 per cent from the previous year to $8 million, roughly 2 per cent of Canadian retail spending. According to the retailer’s research, brand awareness had jumped from 70 per cent in 2011 to 92 per cent in 2013. 25 Given Target’s brand in the United States, Canadian consumers set high expectations for the company to deliver the same customer experience and assortment variety at the same price as the U.S. stores. Competition Incumbent Canadian retailers anxiously anticipated Target’s entrance. The industry was composed of several large players (see Exhibit 4). The launch was expected to be as big a game-changer as when Walmart opened its first stores in 1994 and changed customer expectations and behaviour. For example, driven by the intensifying competition, Loblaw Companies Ltd. purchased Shoppers Drug Mart for $12.4 billion in 2013. 26 At the same time, many U.S. retailers were moving across the border into Canada, including Amazon.ca, Saks Fifth Avenue (a luxury U.S. retailer purchased by Hudson’s Bay Company) and Nordstrom. Operations Target Canada set up its head office in Mississauga, Ontario in 2012 and had hired more than 1,000 corporate staff by 2014. 27 Team members from the United States were brought in for a limited time at various levels of leadership, from senior management to store team leads.28 These individuals were tasked with building the Canadian teams and instilling Target’s culture into Target Canada. By 2014, the company employed 17,600 individuals, with an additional 720 spread globally in the United States and India to support the Canadian operation.29 Instead of leveraging the older supply chain systems used in the United States, Target Canada adopted all-new Canadian data management and forecasting systems with no connectivity to the parent company. 30 Target Canada established three greenfield regional DCs across the country, each averaging around 1.3 million square feet. The Milton DC supported 45 stores in Ontario, with the furthest store located 871 miles away. The second DC in Calgary serviced 46 stores from Vancouver to Winnipeg by the end of This document is authorized for use only by Mshal Aljarbou in Management Spring '19 taught by MOLLY BURKE, Dominican University - Illinois from Jan 2019 to Jul 2019. For the exclusive use of M. Aljarbou, 2019. Page 5 9B15M057 2014, the furthest store being 844 miles from the DC. The Cornwall DC supported 41 stores in eastern Ontario, Quebec and the Maritimes, with the furthest store located 1,644 miles away. Because the company had underestimated the required capacity, Target Canada leased four offsite facilities to manage overflow inventory and one National Returns Centre.31 Although an expensive decision, Target Canada strategically decided to outsource certain operational components, namely, DC management, food distribution and transportation. The DCs employed around 1,500 people and were outsourced to a new third-party logistics partner, Eleven Points Logistics. Sobeys Inc., a Canadian grocer, managed Target Canada’s temperature-controlled food distribution, supplying both national and own brand frozen food, dairy and dry grocery products. Target Canada secured Ryder to manage all truck-based transportation requirements across the country. 32 Target’s distribution structure in the United States differed significantly from the network in Canada. The company operated a total of 40 distribution centres scattered across the United States, including 26 regional DCs, four import warehouses, four food DCs and three dedicated Target.com DCs. Import warehouses played an important role in inventory management as they prevented the regional DCs from being flooded with inventory that was not needed in the short term. Target was gradually increasing its control over its food distribution network and e-commerce fulfillment by moving to self-distribution and adding more facilities. 33 TARGET CANADA PERFORMANCE Target Canada failed to meet customer expectations. Within the first year of the launch, it posted sales of US$1.3 billion and an EBIT loss of US$941 million. Compared to the U.S. segment’s gross margin of 29.7 per cent, the Canadian segment lagged with a gross margin of 14.9 per cent as the company steeply discounted product to clear excess inventory. Performance continued to suffer throughout the year, as outlined in Exhibits 5A and 5B. 34 Customer complaints revolved around a few key issues. First, the stores were plagued with empty shelves as the company’s supply chains were crippled with excess inventory that was stuck at the DCs. 35 Second, Canadian customers expected more competitive pricing that matched prices in the U.S. stores. Not only were prices higher than those in the United States, but the assortments did not match the variety available in Target’s U.S. stores. Finally, Canadians felt the company failed to effectively rebrand the stores, which still carried a Zellers feel.36 Given the poor response in Canada, Target Canada’s then-president Tony Fisher, a 15-year veteran, was fired and replaced by Mark Schindele, Target’s senior vice-president of merchandising operations. This change in leadership was viewed by some analysts as a sign that Target was committed to the Canadian marketplace in the long term. 37 Schindele’s turnaround strategy entailed dropping prices by competitively pricing more products against Walmart, accelerating delivery schedules so that stores received product more frequently and pushing more Canadian assortments.38 Target Canada actively pursued more exclusive Canadian brands, such as Beaver Canoe, while aggressively pricing their products. Target’s third-quarter earnings report in 2014 reflected that Target Canada had improved from the previous year, but the numbers continued to lag behind expectations. Target Canada’s operating loss narrowed to US$211 million from US$238 million in 2013, and sales had jumped to US$479 million from US$333 million. Same-store sales were an important measure in retail tracking sales growth in stores open a year or more, and Target Canada’s 82 applicable stores reported that sales grew by 1.6 per This document is authorized for use only by Mshal Aljarbou in Management Spring '19 taught by MOLLY BURKE, Dominican University - Illinois from Jan 2019 to Jul 2019. For the exclusive use of M. Aljarbou, 2019. Page 6 9B15M057 cent. In comparison, the U.S. segment had experienced a same-store sales growth of 1.2 per cent. Target Canada’s gross margins had improved to 19.5 per cent from 14.8 per cent, reflecting fewer markdowns, but it continued to lag behind the U.S. business’s gross margins of 29.5 per cent. Expenses also dropped to 49 per cent from 66.6 per cent as the company spent less on opening new stores. 39 Operations 40 One of Target Canada’s biggest issues was an overwhelmed supply chain. The company ordered excess inventory that was moving into the DCs faster than it was shipping out. A major culprit was data inconsistencies between the goods and the data system, which created major delays. For example, a carton that arrived with 12 shirts, when the system indicated it should have 24, could not be scanned into the warehouse. Even inconsistencies with measures such as dimensions and barcodes could not be processe ...
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Surname 1
Student Name
Professor’s Name
Course
Date
TARGET CORPORATION
Introduction
As an establishment by George Dayton in 1902, in Minnesota, Dayton Dry Goods
Company, now Target Corporation, there was enhanced dependability of their merchandise
accompanied by a fair way of handling customers. As such, this business giant managed to own a
generous culture. This characteristic led to the expansion of this enterprise to the point where
they opened up a series of departmental stalls. Their strategic views were to create a combination
of what best fashion could offer while giving it at quite recommendable discounts. Around 1960,
this enterprise changed its strategies from being a departmental store to a retailer where the same
ideology of discounting was continued. They rose among the stiff competition in America. This
paper is an analysis of Target Corporation run within the last few decades, identifying the
problems seen as well as how best those problems should be handled.
Despite selling their own brands, Target Corporation dwelt with merchandise from other
suppliers. This led them to employ more than 347 000 employees in more than 1,793 outlets.
Apart from the physical shopping, Target Corporation operated their businesses online with 40
distribution stations mainly positioned within the suburban. This was by the turn off the year
2014.

Surname 2
The main problem identified with such a move is the location of their retail points.
Locating many of their sales points in the suburbs proves a weak move as the population in the
suburbs slacks behind as compared to populations in the cities. Furthermore, city folks earn more
than folks in the suburbs and thus are likely to spend more (Blakely 197).
Although it is quite difficult to change the geographical locations of their stores Target
Corporation are working on urbanizing these suburbs by allowing more businesses in the
suburbs. They have let out some spaces Pizza Hut and Starbucks for a little more revenue.
Urbanizing their locations will generate more sales as the populations in those areas will rise due
to the amenities made possible.
Another strategy adopted by many retailers in the United States of America including
Target Corporation is the Online selling platform. Like all online businesses, Target corporation
feels the full range of effect as do other businesses. Am...

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