International Business Entry Failures - profit line going down

Market Entry B2C Failures

Comparing Target Canada’s Failed Entry into Canada and Canadian Tire’s Failed Entry into the US

Date: January 24, 2019

This report will compare two market entry B2C failures. The first is Target’s failed entry into the Canadian retail market from 2013-2015. The second is Canadian Tire’s failed entry into the US automotive parts market from 1990-1995. Finally, there will be an analysis of the two market entry failures and what can be learned.

US Retailer Target Enters the Canadian Market

Market Entry Method

US-based retailer Target entered the Canadian market through foreign direct investment when it announced that it took over the 220 leases of the Canadian discount retailer Zellers (a subsidiary of HBC) in January 2013 (Dahlhoff, 2015). The retail chain had been thinking of international growth through bricks and mortar stores and it’s northern neighbour Canada was a likely choice since it was mostly English speaking and Canadians would be familiar with the brand due to cross-border shopping (Dahlhoff, 2015). Of the 220 leases they took over, they opened 133 locations across Canada (St. Louis, n.d.).

Distribution Strategy

The Zellers leases that Target took over were spread across Canada, allowing the company to cover the entire country easily and quickly. However, these proved to be inconvenient locations for their target demographic, including shopping areas that were no longer popular. This resulted in many potential customers not shopping at Target which contributed to its quick decline and exit from the Canadian market in 2015 (O’Brien, 2015).

In addition to poorly situated locations, Target Canada failed to design a proper supply chain for the distribution of their products, resulting in empty shelves in many of the stores (St. Louis, n.d.) and a different assortment of products than what Canadian consumers were accustomed to south of the border and were expecting (Dahlhoff, 2015).

Pricing Strategy

Target Canada’s tagline was “Expect More. Pay Less.” however much of their pricing in the Canadian market was considerably higher than it was in their US stores. A poll by Vision Critical found that 53% of Canadians thought the Canadian stores were substandard to the US stores when it came to inexpensive pricing (St. Louis, n.d.). Many Canadian retailers have previously stated that they face more obstacles than their US counterparts, including higher tariffs and a more widely scattered population across a large area (Strauss & Krashinsky, 2013).

Canadian Retailer Canadian Tire Expands into the USA

Market Entry Method

In 1990 Canadian-based Canadian Tire entered the US market for the second time through foreign direct investment. They initially launched two auto parts stores called Car Care USA in 1990, and in 1991 they opened two more stores. They also changed the name to Auto Source and built the new locations following the new trend of superstores with more service bays and inventory space. Shortly after they added six more stores, for a total of ten in the north-central area of the United States (Funding Universe, n.d.).

Distribution Strategy

The ten stores were located in the north-central area of the US, however, an analyst for Wood Gundy Inc stated at the time that the stores were not set up for economies of scale as they were not close together and hindered the auto retail chain (Heinzl, 1994). The initial two stores were built on the successful US auto part chain Pep Boys concept, boasting 14 service bays and a huge area for inventory. When the following two stores were added in 1991, they incorporated the new trend of superstores with more service bays and inventory space (Funding Universe, n.d.). However, Alan Goddard, spokesman for Canadian Tire at the time, stated that the popular warehouse concept was great for categories where variety is appreciated by consumers (such as toys or foodstuffs) however it wasn’t suited for automotive goods (Heinzl, 1994).

Economic Challenges

Although the stores were generating revenue of more than $60 million CAD annually, they weren’t profitable. The main reasons given were that the US was in the middle of an economic downturn, the company’s support infrastructure was larger than needed for the 10 stores, and increased competition from discount chains such as Wal-Mart and new auto discount superstores (Funding Universe, n.d.).   

Conclusion

When Target entered the Canadian retail market, it seems to have been a rushed operation. The availability of the Zeller’s leases may have been the final push to move north after taking into consideration that many Canadians were aware of the US retailer through watching US television channels or cross-border shopping. However, they should have taken into consideration why the Zeller’s leases were available, the challenges of distribution across a large country such as Canada, and the added tariffs and currency exchange. In the end, the company had to pull out of the country as the market proved to be unprofitable or sustainable for them.

When Canadian Tire entered the US automotive parts market in 1990 the US was in the middle of an economic downturn. They were also facing increased competition, both in Canada and the US, from discount chains such as Wal-Mart as well as new entrants to the automotive part aftermarket. In addition, distribution to their chain of 10 stores proved to be challenging and the current trend of superstores wasn’t suited to auto parts.

When entering a new market it’s important to research the economic conditions of the market you’re entering, including if there are a recession and any additional tariffs; a company must also research the locality of their stores to ensure that the population base can support their operations; the supply chain and distribution system needs to be analyzed to ensure that no location runs out of inventory due to extended delivery times; and that there is room in the market category that they’re entering and there isn’t an increase expected in competition.

References

Dahlhoff, D. (2015, January 20). Why Target’s Canadian Expansion Failed. Retrieved from Harvard Business Review: https://hbr.org/2015/01/why-targets-canadian-expansion-failed

Funding Universe. (n.d.). Canadian Tire Corporation, Limited History. Retrieved January 21, 2019, from Funding Universe: http://www.fundinguniverse.com/company-histories/canadian-tire-corporation-limited-history/

Heinzl, J. (1994, December 2). Canadian Tire pulls out of U.S. Closing Auto Source chain after second foray south. The Globe and Mail. Retrieved from http://0-search.proquest.com.orca.douglascollege.ca/docview/385068994?accountid=10545

O’Brien, B. (2015, May 06). 4 lessons learned from famous market entry failures . Retrieved from Trade Ready: http://www.tradeready.ca/2015/trade-takeaways/4-lessons-learned-famous-market-entry-failures/

St. Louis, D. (n.d.). Why Target failed in Canada, and what other companies can learn from it. Retrieved January 19, 2019, from VisionCritical: https://www.visioncritical.com/target-canada/

Strauss, M., & Krashinsky, S. (2013, January 19). The Target invasion: How pricing will be key to Canadian success. Retrieved from The Globe and Mail: https://www.theglobeandmail.com/globe-investor/the-target-invasion-how-pricing-will-be-key-to-canadian-success/article7550145/

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