International news analysis: As it leaves Canada, what's next for Target?

Speaking to a Globe and Mail reporter last August about whether Target would close some of its underperforming Canadian stores, I said it was merely a question of when, not if. We now have the answer.

In announcing Target would shutter all 133 of its stores in Canada, chief executive Brian Cornell made a difficult decision, but ultimately, the right one for the retailer’s long-term strategy and financial health.

The failed Canada experiment is expected to result in $5.4bn (£3.56bn) of pre-tax losses on discontinued operations for the fourth quarter of 2014.

Here’s a short recap of how it all went wrong:

• Target wrongly assumed that just because some Canadians hopped the border to shop its US stores that it knew the Canadian consumer.
• Target went full-throttle in Canada, opening way too many stores way too fast, including some in sub-par locations.
• Target underestimated the level of competition in the Canadian market.
• Target failed to understand the importance of ecommerce. Target.ca is non-transactional.

With Canada out of the way, Cornell can now concentrate on the revival of the US business.  The company’s early read on US holiday performance suggests that the retailer may finally be turning a corner. It now expects a fourth-quarter comparable sales ruse of about 3%, up from previous guidance of about 2%, citing increased traffic and stronger-than-expected digital sales (forecast to be up 40% for the quarter).

To maintain and indeed accelerate the positive momentum, Target will focus on a few key areas:

• Recapture merchandising authority in key categories, such as baby, children’s, apparel, home and wellness. Announced last year, the investment in signature categories is clearly a work in progress, but we have been pleased with what we’ve seen so far.
• Improve localisation and personalisation. Long-term success largely depends on Target’s ability to segment its stores and its assortment to match local tastes and preferences, an area where the retailer traditionally has lagged behind its more analytically oriented competitors.
• Accelerate small-box expansion. Although slow to develop a small-box offer, Target appears ready to invest more heavily in both CityTarget and TargetExpress concepts.
• Bolster omnichannel. Seeking to shed its reputation as an omnichannel laggard, Target continues to invest in improvements to close the gap with more advanced competitors. With holiday 2014, the retailer achieved several milestones, particularly around mobile.
• Figure out food. Target has invested significantly in the PFresh remodels, but the category still lacks the cachet that historically has been associated with the retailer’s non-food categories. Target needs food as a traffic driver, that much is true, but we’re having a hard time imagining the margins are anything but ugly given the rampant promotions the retailer has been running in the category.
  
  
  
  
  
  
• Kelly Tackett, research director, Planet Retail