Reference no: EM133036686

A Case Study: The people side Of Target's Canadian catastrophe

U.S. discount retailer Target Corporation learned some very hard lessons when they attempted to launch their brand in Canada, a launch that ultimately became a high-profile and humiliating failure.

Target began by acquiring 189 failing Zeller's stores in early 2011. By 2013's end, 124 of those locations had been converted into Target stores and other outlets were being built in communities across the country. Despite enormous excitement and significant media coverage when these stores opened, things rapidly began to go badly. In January 2015 Target announced their complete withdrawal from Canada and the Canadian division filed for bankruptcy. About 17,600 workers lost their jobs. While the reasons for the failure were complex, human behaviour was a big part of it all.

Target Corporation had been confident at the outset because Canadian consumers were already familiar with their brand. Target was a popular destination for cross-border shoppers, a common phenomenon in more southern communities. Since they were already attracting Canadian consumers, the corporation made assumptions about their ability to satisfy this new market. But complaints rapidly emerged about poor product selection and a lack of desirable brands. Canadian consumers were also surprised and angered to discover that prices on some items were much higher than in U.S. outlets. The prices reflected duties, tariffs, and transport costs, but of course the consumers did not care about Target Canada's expense structure; they cared about having their expectations violated and about perceived inequities as compared to American consumers.

Communications and the management of important change initiatives were also problematic, as evidenced by the many supply chain problems that were reported. Target Canada did launch a brand-new information system to manage inventory in their Canadian operations, but their failure to transition effectively to this new tool led to communication errors throughout the supply chain-and ultimately empty shelves and frustrated consumers.

The resentment only worsened when Target Canada announced their withdrawal from Canada. Target offered all employees 16 weeks of severance pay, well exceeding minimum legal requirements, yet they were still heavily criticized. This was in part because the total value of the compensation package for all 17,600 employees was approximately $70 million while the total severance package (including stock options and benefits) received by ex- CEO Gregg Steinhafel the previous May had been $61 million. Canadians, generally less tolerant of huge discrepancies in pay than Americans, were shocked. Online forums were filled with comments trashing the Target brand and reiterating the importance of "buying Canadian." If anything, Target's foray into Canada seemed to have made Canadians less likely to buy from American retailers, the exact opposite of the stated intent.

Questions

1. Business decisions are often assessed in purely financial rather than human terms. How might the study of people in general and organizational behaviour in particular have helped Target with some of the challenges they faced when entering the Canadian market?
2. Outline some of the problems associated with using "gut feel" when entering a new country to do business. Is there any evidence that overreliance on "gut feel" might have occurred in this case? How might scientifically validated information help a company enter a new country more successfully?