How Target Can Expand Internationally (TGT)

Target Corp. (TGT) made its first international foray in 2013 with an ill-fated entry into Canada. Target’s rapid expansion was criticized from the beginning, most recently with its plan to open over 100 stores in a short amount of time. Since exiting Canada in 2015, Target has shifted its attention away from international expansion and towards other goals. How though, can Target profitably return to Canada and expand to other countries? (For related reading, see: Target Finally Escapes Failed Canadian Experiment.)

A huge potential source of revenue for Target is its new international website. Target recently committed a part of $1 billion to improve its e-commerce business and while the site is live and more or less worldwide, it is not what a consumer expects from one of the major retailers in the United States.

To improve its online business, Target needs more than just a website. Target needs to establish a network of warehouses in different countries. As it stands, a Canadian ordering from Target would have his or her items shipped from a Target distribution center in the U.S., subjecting the products to high shipping costs and import duties.

By establishing distribution centers – one in Canada, another in the United Kingdom, yet another in Japan – goods coming from international factories could bypass the U.S. and directly enter the destination country from wherever the good is manufactured. Not only is this cheaper for the consumer but faster as well, both in terms of shipping times and the time during which the item is held in inventory. 

Once the distribution centers are in place, Target needs to tailor its website to each regional market – Canada, Europe, Asia – and only display products that are available to those customers. One of the Canadian customers’ biggest problems was empty store shelves. Today, Target’s international website is an online replication of empty shelves – products for sale that can’t be added to the cart. By having a dedicated Target Canada website, Canadian shoppers would be able to purchase whatever they saw and have it quickly and economically shipped from a Canadian warehouse without having to pay high duties.

Once Target’s e-commerce sites are fully functional and consumer-friendly, Target can physically expand into new markets. The retailer will need to work with either department store retail space or pop-up stores in various shopping centers. The key isn’t to open up as quickly as possible to get as many customers as you can but to maintain Target’s reputation. (For more, see: Target to Pursue Growth by Going Smaller.)

As Target’s Canadian experiment proves, consumers who are disillusioned straight away are difficult to get back in the store. A small roving store in the U.K., for example, would introduce Target and its brands to the population. People who were already familiar with Target would rush to the temporary store to buy what they could in-person while those for whom Target is new would have the opportunity to see the brands and shop online.

By slowly providing good service and stocked shelves, demand for Target products will increase. The increased popularity of the store would be enough to have the retailer think about expanding further and opening permanent locations.

Permanent stores would be next, but not anywhere near the scale that Target was going for in Canada. A Target return to Canada would need to see stores that resemble CityTarget or TargetExpress locations: small, densely stocked and in urban centers. In Canada, Target would be able to eventually expand to large suburban stores, but given the popularity of online shopping, operating as many locations as they had previously would be overkill. (For related reading, see: Big Box Stores vs. Small Retailers.)

In Europe and Asia, smaller stores are all that Target can afford. Big box retailing is much too expensive for Target in high-cost cities and given that Target ought to have an excellent e-commerce website by the time it opens stores, a large part of its revenue can come from online sources coupled with delivery or via in-store pickup.

Given Target’s history with supply chain problems, a concept that it can look into is in-store ordering. In smaller stores with little storage room, Target can set up a system in which customers can try on merchandise and order in-store to be delivered to their address. A system that is set up for this purpose could double as a way to ensure that customers who wish to purchase something are never turned away due to lack of inventory.

Providing alternative methods to get goods that double as a fail-safe for inventory control problems while using existing delivery infrastructure is an inexpensive add-on that all retailers should be doing. (For more, see: Top Investment Ideas for Malls of the Future.)

After a failed attempt to enter the Canadian market, Target’s management has decided to expand into grocery. Target’s international expansion was hasty and problematic but shareholders shouldn’t accept that Target has no more international aspirations.

First, Target needs to revamp their website to allow international shoppers to pay competitive prices when buying from Target. Next, Target can expand into other countries by moving slowly and taking care to not damage their corporate reputation. An international Target is possible and necessary for the retailer to grow anywhere near the size of its closest competitors.