Whether a retailer’s ultimate goal is to occupy 500 stores or 5 stores, there are myriad considerations involved in expansion decisions. Of those considerations, there is a case to be made that real estate can make or break a new store. Cost and availability are crucial, but as the old saying goes, “location, location, location” might just be the key to a successful retail expansion.
One of the most recognizable cautionary tales of poor retail expansion planning comes from the mega-retailer Target. In 2013, the company took on a massive retail expansion in the hopes of connecting with a whole new crop of Canadian shoppers. However, after experiencing $1 billion in losses in their first year of the expansion, Target was forced to close down all 133 of its Canadian stores. How could one of America’s top retailers fail in such short order, and what lessons can retailers learn from this extreme misstep?
Massive Location Miscalculation
Target’s epic Canadian failure cannot be pinned to a single miscalculation. It is now apparent that Target’s pricing model was off, their supply chain suffered serious problems,and they failed to understand Canadian consumers. However, Target’s retail expansion woes, no matter how compounded they became over time, can be traced back to their first critical mistake: their lack of due diligence when it came to making site selections.
Target chose to open 124 locations at the same time in 2013. In order to meet their timeline and keep costs low, Target chose not to utilize map analytics and data to make strategic choices. Instead, they took a shortcut and bought out the leases of the now-defunct Canadian retail chain Zellers for $1.8 billion. According to Fortune, those locations were, “poorly configured for Target’s big-box layout, and were in areas not frequented by the middle-class customers Target covets.”
Since the stores were so far out of the way, customers weren’t shopping, and when they did travel to Target, they were met with a host of other problems. Those problems may have been forgivable if the local store was located around the corner instead of miles away, but distance drove a wedge between Canadian shoppers and Target.
Lessons Learned From Target’s Retail Expansion Failure
Now that analysts have the benefit of 20/20 hindsight, Target’s mistakes are clear. Just what should they have done differently? When it comes to a store site selection, retailers of all sizes must ask a critical question, “What are the best markets for us, and what is the ideal location in each market?” This question forces a retailer to think beyond a building. In order to choose the right locations for a retail expansion, stores must know their customer base inside and out, and how the unique preferences of those customers will influence location choices.
Popular stores often make the mistake of thinking, “If you build it, they will come.” This is a nice sentiment, but is only true in Field of Dreams. Location can and does determine the success of a retail expansion, whether a store is a local superstar or it is one of the country’s largest and most popular chains. To properly plan an expansion, retailers must conduct a thorough study that will identify the characteristics that impact store profitability.
For one regional department store chain undergoing an expansion, those correlations were geographic, customer classification and market classification. By studying the characteristics of successful existing locations and the customers in that location, the retailer was able to choose space that would allow them to reach new customers without cannibalizing any of their existing stores.
It’s easy to approach a retail expansion with an eye for the budget, snapping up readily available space at a low price. However, a strategic approach that leverages hard data found in customer profiles, sales distribution numbers and market share analysis will provide valuable insights when it comes to site selection. After all, no matter how popular a store’s products or how reasonable its prices, it won’t mean a thing if the store is in the wrong location.