Is The Sky Falling On Target Canada Or Are We A Bit Too Impatient?

  • Recently, market research firm, Forum Research, conducted a new customer satisfaction survey.  Target came in last place in the survey as rated by Canadian consumers across the country.

    Only 27% of those polled said they were “very satisfied” with the big-box retailer.  The company has failed to meet the expectations of consumers as it has gone down in ratings since April when it received a rating of 32%.

    Costco received the highest ratings at 62%, which was the same rating it received in April.  The company appears to be making all the right moves, as consumers are very happy with company offerings.

    Marshall’s increased in ratings from 24% in April and both Sears and Target declined.

    The ratings were as follows:

    Ogilvy – 59%

    Wal-Mart – 40%

    Hudson’s Bay – 40%

    Winners – 35%

    Marshall’s – 35%

    Sears – 34%

    Holt Renfrew – 32%

    Target – 27%

    If these results are any indication of where the company is currently at in Canada, it has much work to do to create a more favorable impression in consumers’ minds.

    There was much build-up and hype on the impending arrival of Target earlier this year as the company opened the first three of its stores last March in Guelph, Fergus and Milton Ontario.

    These three stores experienced very high demand and struggled to keep up with the pace as consumers were agitated with low inventory levels.  The company had a hard time keeping store shelves stocked.

    After this initial soft opening, the company had its official opening on April 5th.  Additional stores opened up across the country and 124 stores in total will open by year-end.  Additionally, 5 to 10 stores will open up each year to about 150 by 2017.

    The two main causes of customer dissatisfaction of Target’s foray into Canada thus far appear to be the lack of inventory and the price differential between Target’s US and Canadian stores.

    The company has cited an unexpectedly high level of demand as the reason for low inventory levels.  It says consumers have a high interest in the new retail chain and the company needs time to catch up.

    Indeed, after I went to find some summer water toys in my local Target store this summer, I was forced to go across the street to Wal-Mart to find stocked shelves as the Target I was at did not have much inventory.

    President of Target Canada, Tony Fisher says the company’s Canadian prices are right on track and indeed are not as low as those at its US stores.  He cites various reasons for the price differential including different transportation costs, distribution costs, fuel costs, wage rates, taxes and duties.

    If consumers are discouraged by the difference in prices, he is encouraging consumers to still cross-border shop and stresses that the increased competition Target brings to the Canadian marketplace can result in better prices for consumers in the long run.

    The company’s second quarter results indicate that apparel sales have exceeded expectations but food, health care and other high volume categories are sluggish.  Q2 sales rang in at $275 million for its 68 stores while Q1 sales were $86 million based on 24 stores at the time.  Sales have remained relatively the same over the two quarters.

    The company says it will try and bring more customers into the store by focusing on high-frequency items.  “We need to drive trips,” says Gregg Steinhafel, Target chief executive and chairman.

    Steinhafel also said “As we monitor the economy and consumer sentiment, we continue to see a mix of signals in which emerging optimism is balanced with continuing challenges.”

    Indeed the company is optimistic as it has high hopes for its RedCard loyalty program.  Only 2.3% of sales in the second quarter were delivered through the RedCard program.  That is in contrast to the US, where 18.7% of sales were on a RedCard debit or credit card.  Target says that it typically sees a 50% increase in household spending after customers sign up for the program.   Thus the company expects sales to increase once the RedCard program becomes more penetrated.

    Amid the consumer research survey, the company has still done well as it is in the middle of a major national expansion.  It has undertaken no small feat as it has built a supply chain with 3 distribution centers renovated 68 stores and trained thousands of employees.

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