Getting the right retail location can be tricky. When I was Chief Marketing Officer for the 135 It’s A Grind Coffeehouses, we opened franchise locations 3000 miles from our home office.
Where competitors like Starbucks and Dunkin’ Donuts were opening clusters of stores to dominate a market, we might only have one.
When they were the first one in a new area, there were no economies of scale - no shared distribution, no marketing overlap, and worst of all, no brand recognition.
Big boxes can also struggle with opening new markets too...
Thursday, Target Canada announced they would pull the plug on 133 locations across the country in the coming months. That’s 17,000 employees out of work.
There were many reasons for the Target closures a Canadian retail consultant told me, “This was a classic example of poor execution. Deep pockets and bright minds, but poor understanding of the market and how to execute up here.”
According to the New York Times, while Target stores in the United States are popular destinations for Canadian visitors, the discount department, differences in suppliers and other factors meant that Canadians found Target’s Canadian stores to be more expensive, and a poorly executed distribution network meant that shelves were often empty.
Don’t let yourself get caught in the Target trap!
What do these store closing problems have to teach retailers, large and small, who are looking to expand? For starters:
Problem: They opened too many stores too quickly. Lesson: Know what will work and be willing to tweak. Because Canadians shopped heavily at US Targets, Canada Target assumed Canadians would be drawn to the brand name. Target Canada went big two years ago by opening 130 locations. That meant they didn’t have the time to tweak - operational issues are hard to fix once you’re open. If they had just opened a handful of stores and then listened to customer feedback, they could have made crucial changes quickly to deliver on the Target brand promise. You must study your potential customer first and foremost before opening. And that's more involved than simply asking them - they'll all tell you they'll shop there - but will they? Build it and they will come - doesn’t work.
Problem: They picked a price war with WalMart. Lesson: Know your competition. Can you break customer loyalty? Wal-Mart, already the biggest retailer in Canada, cut prices to fend off Target. You can’t win on price.
Problem: Empty shelves. Lesson: Have infrastructure. Out of stocks will kill you. A frequent scene on social media and in news posts showed Target with multiple fixtures empty of product. In an attempt to cover it, they would fill the shelves with one product, like laundry detergent, to try and mask their distribution woes. Stocking one store is much different than stocking many.
Problem: Transportation costs were higher Lesson: Know your pricing. Due to duty taxes, shipping, and other expenses, Canadian merchandise is more expensive than in the States. This dogged Target Canada who must’ve thought no one would notice that their prices were higher than matching items in the States. That hit really hard because Target’s message is Expect More. Pay Less. Wal-Mart prices, on the other hand, were widely seen as the same in Canada as the US. Their key is their established and carefully plotted distribution network. If you plan to ship everything to one location and divvy it up, remember, there are hidden costs as well. Know ahead of time what the true costs for shipping, etc. will add to your price structure.
Problem: Bad locations. Lesson: Location, Location, Location. Target could not change fast enough the sites they had chosen. Many times retailers can get a deal on older locations that may not be as convenient or visible as newer spaces. Starting out in weak locations is not a good way to start. You never want to be 100 feet from success; pay more money for the best site.
It’s easy to say Canadians just weren’t into Target, but that’s not the case. Those who implemented the idea to go to Canada failed the brand - and it had nothing to do with money.
Opening additional locations can be a smart way to grow your business. Just make sure you have demand in the new area.
I know one retailer who took an ad in the paper asking customers to call for information. By tracking where the most calls came from, she was able to target her additional locations.
And finally, when you get close to opening that new location, train new employees in your already open locations, so the culture is the same and there is continuity from location to location.
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