Target’s 124-store Canadian expansion has been plagued with supply problems and pricing complaints.Chris Young/The Globe and Mail
After struggling through a year that Target Corp. executives are probably relieved to put behind them, they now face further uncertainties.
Just weeks before Christmas, the U.S. discount giant was hit with a massive credit-card hacking attack tied to its American stores, forcing the retailer to offer more discounts to lure anxious customers in the crucial holiday season – and shaving its profits.
The company stumbled in its launch of 124 stores in Canada,
its first foray outside its U.S. home base, and now has to fix its problems here. They include
frequently empty shelves and a perception its prices are too
high.
More broadly, Target and other North American retailers are grappling with skittish consumers who are heading to stores less often. Store traffic is declining as consumers shop more online, save money to pay off debts and drive to malls less amid high gas prices.
The shift is forcing retailers ranging from the mighty Wal-Mart Stores Inc. to fashion chain Abercrombie & Fitch Co. to re-think their strategies. On Wednesday, Target executives may shed more light on their plans to lure back customers when they release the company's fourth-quarter results.
Target has focused more on touting its low-margin consumer products and food because they draw shoppers to stores more often than clothing and home goods.
The thinking is that once shoppers come to the stores for these needs, they will also buy higher-margin discretionary products, such as its cheap-chic fashions.
But the strategy is proving to be ineffective as more rivals take the same approach, says retail analyst Michael Exstein at Credit Suisse.
"The adoption of the consumables-based strategy is now so prevalent across retailers that it no longer seems to be driving traffic."
He says Target would do better to differentiate itself by returning to trumpeting more heavily its heritage private-label apparel and home decor lines.
In Canada, Target initially rang up stronger-than-expected sales in its fashion and home decor aisles, its executives have said. Now, "it's important for us as a new player in the Canadian marketplace to raise awareness of our unbeatable prices on consumables," spokeswoman Lisa Gibson says.
Perry Caicco, retail analyst at CIBC World Markets, predicts Target Canada will focus even more on its food business in its efforts to be seen as an everyday-shopping destination.
He estimates that Target generated up to $130-million in grocery sales here in 2013, but needs to raise that to the $700-million to $800-million range in 2014 for its business model to work.
He also predicts that Target will bring its PFresh concept to Canada, which entails carrying a limited offering of fresh food, such as fruits and vegetables.