There’s not a Target on their back yet, but incumbent retailers must step up their game in the few months remaining before the U.S. retail giant arrives on Canadian soil says a Toronto-based consultant.
“They’ve only got so many months to establish a particular impression in consumers’ minds,” says retail consultant Ed Strapagiel. “The good thing is, the road to get there has already been travelled.”
The 1994 arrival of Walmart in Canada gave valuable lessons on how to prepare for a foreign invasion, says Strapagiel. Similar lessons can be applied almost 20 years later.
According to Strapagiel, successfully competing with Target hinges on two key factors: unique and good quality merchandise; and standout service.
Strapagiel’s report for KubasPrimedia predicts that incumbents like Sears and Walmart will be hardest-hit by Target’s arrival, while others like Costco and IKEA are expected to escape relatively unscathed.
IKEA stands apart because of its distinct shopping concept and unique merchandise, he says, while Costco’s membership program and longstanding reputation for delivering value for money enables it to offer consumers something different.
The good news for the grocery sector is that Canadian consumers seem more enticed by Target’s fashion than its food.
In a survey of 1,500 Canadian consumers by KubasPrimedia earlier this year, only 6 per cent predicted that incumbent food retailers such as Loblaws and Sobeys would lose “a lot” of sales because of Target, while 35 per cent said they would “not lose any sales.”
While Target has been close-mouthed about what products it will carry, Strapagiel predicts that any entry into the grocery category would focus more on dry goods than fresh meat and produce, which he says are more difficult to do well in.
Late last year, Target struck a deal with Sobeys that will see the Canadian grocery retailer supply it with dairy, frozen and dry goods–both national and private-label brands–beginning early next year.
While incumbents may be able to compete on product availability, Strapagiel says they also need to ensure their back-end functions are in order to compete with Target’s sophisticated inventory and supply-chain systems.
“The back room operations in grocery have become far more important,” says Strapagiel. “It’s all about delivering the lowest price that you can make some margin on. All of that happens not so much once you get the product on the shelves, but through all the logistics that get that product there.”
If Target’s arrival does spark a price war, that could be bad news for grocery retailers, says Strapagiel.
Retailers have so far shown restraint in not passing on cost increases created by rising commodity prices, he says, but it’s unclear how long such belt-tightening can continue.
“The margin squeeze has already been done, so it’s hard to see going down the road that they can lower prices that much more, particularly in food,” he says.
Strapagiel also predicted a rise in social media activity as incumbents work to retain both existing customers and attract new ones.
“It’s not all that effective when it comes to selling a jar of Nescafe, but that’s going to be a front that [gets] more developed,” he predicts.