Divestment is the practice used to minimize unnecessary losses related to subsidiary assets and prevent detrimental effects on core businesses. As it follows from the case of Target, the company failed to stand out from its competitors when serving customers in Canada and had to give up its subsidiary assets to prevent further financial and reputational failures.
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Criteria of Divestment
According to Aaker and Moorman, the criteria for divestment include market attractiveness, strategic fit, and business position. In general, Target Canada met all three criteria for divestment, but the market’s attractiveness was reduced because of the company’s own mistakes. As for business position, it is logical to sell only non-essential business units that are a waste of money and time. From the case, it is clear that Target Canada experienced a major customer outflow resulting from the company’s inability to meet clients’ expectations related to a wide variety of products. Basically, this criterion was met since the stores purchased in Canada were not designed to meet the retailer’s goals.
As for the next criteria, strategic fit and market attractiveness, the decision to divest was probably the best strategy that Target could utilize in that case. In particular, prior to entering the Canadian retail market, Target expected to gain enormous profits and recover related expenses by 2013 (Yoder, Visich, & Rustambekov, 2016). However, the analysis of Target Canada’s internal operations indicated that the company’s new stores had no chances to operate as planned before 2021 (Yoder et al., 2016). With that in mind, Target’s failure to exit the Canadian market on time would result in more significant financial losses. Next, speaking about the market, Canada could be an attractive market for smaller retail companies. Actually, Walmart was a strong market leader in Canada when Target started opening its stores there (Yoder et al., 2016). In the U. S., Target had a positive reputation due to its high-quality goods, which made entering Canada an attractive option. However, after a series of failures resulting from Target’s willingness to cut corners on stores, the company lost that advantage and customers’ support.
The chances of Target Canada to win in the price war were barely present since Target did not retain its competitive advantage when operating in Canada. The main characteristic that Target Canada could play on to stay popular and attract customers away from Walmart was its ability to offer plenty of choice and suit different people’s tastes. However, Target Canada’s management team preferred to rely on increasing the speed of development rather than improving the quality of customer experiences. The resulting financial losses were enormous, and the combination of financial problems with reputational issues would not let Target Canada win. Walmart was among the most influential market players in different countries, and it definitely had enough resources to deal with the outcomes of temporary price reductions (Babin, Borges, & James, 2016). Target could not do the same due to its significant strategic failures.
If I were the president of Target Canada, I would not accept Walmart’s challenge. Given the abovementioned facts and considerations, Target would not be able to win, and trying to engage in the war and outperform Walmart would cause further losses. The only thing that could help improve Target Canada’s position would be to close a number of stores in small cities and perfect the company’s inventory planning practices to improve its product mix. To sum up, the proposed reaction would not allow Target Canada to win the price war or become the market leader in Canada, but this practice would probably lead to increases in profits and reputational gains.
Aaker, D. A., & Moorman, C. (2018). Strategic market management (11th ed.). Hoboken, NJ: John Wiley & Sons.
Babin, B. J., Borges, A., & James, K. (2016). The role of retail price image in a multi-country context: France and the USA. Journal of Business Research, 69(3), 1074-1081.
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Yoder, S., Visich, J. K., & Rustambekov, E. (2016). Lessons learned from international expansion failures and successes. Business Horizons, 59(2), 233-243.