Go big, or go home. Most businesses seemingly live by this motto when they consider expanding internationally. But it's not always that simple.
In fact, it takes a lot of research, hard work, and growth at home before a retailer can take that "go big, or go home" step. After all, establishing a brand name and creating demand takes a lot of time. Take Walmart (WMT). The company has a huge presence in the United States—its home country—but it has also been able to successfully penetrate the global market. The retailer has more than 11,000 locations in 27 different countries, including Chile, Mexico, and Guatemala.
Since Walmart has been able to successfully penetrate the international market, it stands to reason that its competitors can do the same—competitors like Target (TGT). But how does a company like Target stand to compete in the international market? Learn more about the steps Target may need to take to grow beyond the U.S. border.
- Target already flirted with international expansion when it entered the Canadian market in 2013.
- The venture failed because Target opened too many locations in a short period of time.
- The company can attract international customers by opening up distribution and delivery channels for people who want to shop online.
- Opening small retail outlets in select international locations rather than multiple stores all at once may prove beneficial to a company like Target.
Target is one of the largest retailers in the United States and is easily recognized by its signature red color, bullseye logo, and its mascot, Bullseye the dog. Headquartered in Minneapolis, Target has a long history dating back to the early 1900s. The first Target store, though, was opened in 1962, when consumers were first introduced to its discount retail model. As of the 2019 fiscal year, Target operates more than 1,800 locations across the United States and employs about 360,000 people.
The company continues to function as a discount retailer for clothing, housewares, small appliances, beauty, and toys. Target also expanded its offerings to include groceries to keep up with the likes of Walmart, which also has superstores across the country.
Target ranked in 39th place on the Fortune 500 list in 2019. The company reported revenue of $78 billion for the full-year ending Feb. 1, 2020, an increase of 3.7% from the previous year. According to Fortune, its 2019 financial earnings results demonstrated the fact that the company was well-equipped to handle competition from Walmart and Amazon.
Targeting the International Market
Target already flirted with international expansion when it entered the Canadian market in 2013. The decision was met with much fanfare from consumers after it was announced that the Canadian subsidiary—headquartered in Mississauga, Ontario, just outside Toronto—would acquire store leases for old Zellers stores from Hudson's Bay. By 2015, the company had more than 130 locations across Canada. But its entry north of the border proved to be ill-fated.
Target’s rapid expansion was criticized from the beginning, primarily because of its plan to open so many locations in a very short amount of time. Since exiting Canada in 2015, Target shifted its attention away from international expansion and toward other goals. How though, can Target profitably return to Canada and expand to other countries? There may be a few ways to get back into the global market.
Revamped Website and e-Commerce Strategy
A huge potential source of revenue for Target is its website. In 2015, Target committed a significant amount of capital to improve its e-commerce business. 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.
But Target needs more than just a website if it plans to improve its business by expanding internationally. Target needs to establish a network of warehouses and distribution centers in different countries. As it stands, a Canadian ordering from Target would have their 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 enter the destination country directly from wherever the good is manufactured. Not only is this cheaper for the consumer, but it's also faster—both in terms of shipping times and the time during which the item is held in inventory.
One of the Canadian customers’ biggest problems was empty store shelves. The same principle applies to international customers shopping online. Once distribution centers are in place, Target needs to tailor its website to each regional market and only display products available to those customers. By having a dedicated Target Canada website, for instance, Canadian shoppers can purchase whatever they see online and have it quickly and economically shipped from a Canadian warehouse without having to pay high duties.
Temporary Locations to Build Brand
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—as it already did in Canada in 2013—but to maintain the company's reputation.
As Target’s Canadian experiment proves, disillusioned customers are difficult to get back into the store. A small roving store in the U.K., for example, would introduce Target and its brands to the population. People already familiar with Target would flock 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 can increase. The increased popularity of the store would be enough to have the retailer think about expanding further and opening permanent locations.
Slow Expansion With Physical Stores
Permanent stores would be next, but not anywhere near the scale that Target was going for in Canada. A return to Canada would need to see stores that resemble CityTarget or TargetExpress locations. This means they would need to be small, densely stocked, and in major 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.
In Europe and Asia, smaller stores are all that Target may be able to afford. Big-box retailing is much too expensive for Target in high-cost cities. Given that Target should 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.
The company can set up a system in smaller stores 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.
The Bottom Line
An international Target is both possible and necessary for the retailer to grow anywhere near the size of its closest competitors. But how does it do this? The company needs to revamp its website to allow international shoppers to pay competitive prices. It can also expand into other countries by moving slowly and taking care to not damage its corporate reputation.