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Target Pulls Back Canadian Expectations, Investors Shouldn’t

Target's Canadian expansion takes a wrong turn after just five months

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Now let’s talk about customer service. According to a Forum Research survey only 27% of its customers were “very satisfied,” compared to 62% at Costco’s (COST) Canadian locations. In fact, Target was dead last out of the eight large retailers surveyed. That’s truly embarrassing for the company’s first push into Canada.

I’m not really surprised, though. Retail isn’t a serious career in Canada like it is in the States. Given the number of staff needed for these stores, you knew the average location would be filled with people only there to earn a paycheck until a real job came along. It’s a harsh reality. However, it’s not entirely the fault of employees.

Customer service is about more than hiring correctly. It’s about having the right product, enough inventory, good prices, bright stores, and helpful staff. It doesn’t matter if your employees are all champions of retail if the other things that make Costco tick aren’t present. You’re putting your staff on the floor with one hand tied behind their backs; it’s just wrong.

The good news — all of these problems can be fixed. That doesn’t mean will be easy — quite the opposite. Target is going to have to battle for the next 24 months to truly win the hearts and pocketbooks of average Canadians. And if they mess up Quebec, you can kiss Canada goodbye.

Target’s original projection was $6 billion in revenue within 10 years. Regardless of what has happened to date, I still feel the company has underestimated the potential here. American retailers who have come north willing to understand our differences and similarities — accepting us for who we are — have always done well. That’s never going to change. You can bet Nordstrom (JWN) is watching this unfold very carefully.

This is going to take 2-3 years to play out. Forget about the profitability of Target Canada for now and focus on what it’s doing to alleviate the concerns of its Canadian customer base. If its stock drops despite obvious signs it’s making amends north of the border, you should start buying by the boatload because when it gets to 200 stores and figures out the formula for Canadian success, Target will be sitting on a gold mine.

From where I sit, nothing has changed. The potential for Target is still very real despite the early setbacks. In my opinion, its stock remains a buy.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/target-pulls-back-canadian-expectations-investors-shouldnt/.

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