Expanding into New Markets

Expansion is the goal of every successful business. At some point, your company will reach its potential within its present market and you will have to look elsewhere to sell your products and services. That might mean finding a new neighbourhood, city, province, state, or country to conquer.

But there are risks and challenges to any business expansion, especially when you’re operating in unfamiliar territory. Cultural differences and language barriers require reliable translators and fixers. Cunning competitors with established bonds to local suppliers and distributors can cripple even the best-financed marketing campaign. And jurisdictional challenges may see your legal team’s billable hours skyrocket.

So is it worth taking a chance on doing business in an unfamiliar place? What are the best approaches for success? And if your new venture fails, will it jeopardize your core business? The answers differ greatly depending on the size of your company, its resources, your goals, and your tolerance for the aforementioned risk and challenge.

From the macro perspective, the spectacular flame-out in 2015 of American cheap-chic retailer Target in Canada serves as a cautionary tale to corporations thinking that success can be replicated in new markets without consideration of local conditions. On the micro level, independent women’s fashion retailer Fresh Collective has seen steady growth over the last decade, with three locations in vastly different Toronto neighbourhoods, with (possibly) more to come. Both examples show that great risk can result in great reward…or great failure. To that end, here are a few strategies to keep in mind.

Know Your Location, Know Your Customer

Target’s decision to expand into Canada did not seem unwise. Many Canadians were already familiar with the brand through cross-border shopping and liked its reasonable prices and product selection, especially on clothing and housewares. And while rumours of Target’s Canadian ambitions had circulated since the early 2000s, the retailer waited out the 2008 recession until economic conditions were more favourable before proceeding.

Target’s venture into Canada was big, with the company announcing its $1.8 billion purchase of leases on 220 Zellers stores across Canada in January 2011. It was a bold move, initially praised by analysts and observers. It was only later, after the Canadian experiment was failing, that critics pointed out that many of the stores were in out-of-the-way places and didn’t look as appealing as their American counterparts. Making matters worse for potential customers was Target Canada’s seemingly unreasonably high prices, supply problems that kept store shelves empty and the relative unavailability of popular brands found in Target stores in the US.

Considerably more modest (but more enduring) has been Fresh Collective’s measured expansion across Toronto. Entrepreneur Laura-Jean Bernhardson started out selling her hand-made sweaters on consignment under the name Fresh Baked Goods in the 1990s. She eventually established her own store under the same name in the city’s bohemian, tourist-friendly Kensington Market. Ambition drove her to open a second store in 2003, called Fresh Collective, on Toronto’s trendy Queen Street West. There Bernhardson shared space with other local designers who sold their own products and interacted directly with customers. That concept evolved into a more traditional retail space in 2012. Fresh Baked Goods, meanwhile, fully rebranded as Fresh Collective in 2011.

Bernhardson accumulated more debt than she intended with the Queen West store and felt burned out. But the itch to expand prompted her to open a third store because her brand’s core demographic of professional career women—or, as Bernhardson affectionately calls them, “grown-ass ladies”—were moving away from the city centre. She came to this conclusion through observation and data analysis conducted by a local real estate agent.

Know Your Competition

Canada’s luxury market may have had room for competition, but Target entered a Canadian discount retail landscape already dominated by the likes of Walmart, Costco, Giant Tiger, and Sears—all large chains with established supplier relationships and, unlike Target Canada, fully-stocked shelves. Walmart in particular was determined to not lose market share and engaged in a price war that Target found difficult to win. Loblaws, meanwhile, launched their Joe Fresh clothing line, competing directly with Target on price and style.

Price and style were high on Bernhardson’s mind when she decided to relocate her Queen West store to Toronto’s Beaches neighbourhood. It was 2016 when she noticed Queen West “starting to slip.” Revenue was down, rent was up, and the store’s customers were primarily twentysomethings rather than Bernhardson’s grown-ass ladies. She finally settled on a “little fashion strip” frequented by style-conscious, working-age women on the other side of the city. She and her team introduced themselves to local store owners and made sure there wouldn’t be much product overlap with their new local competitors.

“That was something we ran into, that some of our strongest labels were already carried by the stores within a three- or four-block radius,” Bernhardson says. “And what will happen is that the supplier will actually protect that exclusivity. So there were certain brands that we couldn’t take over from our Queen West store. You don’t want to get into a battle of ‘it’s four dollars cheaper next door.’”

Know Your Limits

Target’s play for Canadian retail dominance was ambitious but, in hindsight, presumptuous and overreaching. Bernhardson, meanwhile, has no immediate plans for more Fresh Collectives locations, preferring to grow the company’s online store, but would open them in Toronto before venturing further afield.

“The thing that’s tricky is the flexibility we have to transfer product around in Toronto,” she says. “I think there could be a lot more Toronto stores we could open before we would be looking at too much further away. It also lets us build on a warm market. Even when we moved to The Beaches, we found we had a nice mix of people who knew us and people who were like, ‘I’ve never heard of you before.’ We hear from customers who live in north Toronto, so I feel there is more room to expand within Toronto before dealing with the hassles of a store that was that much further away.”

Sean Plummer | Contributing Writer

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