As a number of U.S. retailers have learned over the years, heading north to plant a flag in Canada is not as easy as it may seem.
Target's botched entry into the country in 2013, when it opened more than 100 stores within one year, was one reason analysts gave for the sudden departure of CEO Gregg Steinhafel last week.
Discount retailer Big Lots announced plans last year to exit the country after a two-year stint that failed to gain traction among the country's consumers. In 2011, even specialty apparel store J. Crew ran into trouble for passing on higher prices to Canadian shoppers.
And on Wednesday, Sears became the latest retailer to add its name to the list of stores that have fumbled operations in Canada. The retailer announced that it is considering the sale of some or all of its stake in Sears Canada's operations.
"Since day one of the Sears/Kmart merger, Sears Canada was viewed as an outsider to the company, a place where the mothership holding corporation could extract money from to pay for share buybacks or to get out of leases in the United States," Belus Capital Advisors analyst Brian Sozzi said. "The lack of nurturing has now left Sears Canada as this rogue, dying asset that has faded from the minds of Canadian consumers."
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Although there is no exact formula behind each individual retailer's struggles, experts offered a list of six common mistakes U.S. chains make when setting up operations in Canada.
1. They assume that Canadian consumers are the same as U.S. consumers. Many American retailers are under the assumption that what worked well for them in America will translate over to Canada. That simply isn't true, Sozzi said.
Despite Canadian consumers frequently buying U.S. brands and that many speak English, shoppers have different expectations and needs when the retailers enter the Canadian market. One example is that Canadians expect higher standards in fresh grocery than Americans, said Toronto-based Dean Hillier, Americas lead for the Consumer Products and Retail practice of A.T. Kearney, a global management consulting firm.
"Bottom line: American retailers are not emotionally connecting with Canadians," Sozzi said. "They need to improve their research."
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2. They should consider setting up online operations before investing in an entire store network. For retailers questioning whether their brand will gain a following in a new country, one thing to consider is building out their online shopping functionalities first, said Craig Reed, vice president of global e-commerce at Pitney Bowes. The company advises retailers on how to sell products in international markets.
"The typical costs of retailing—which include real estate, overhead, inventory management—have become so high that opening new brick-and-mortar stores are almost a high-risk venture," Reed said. "However, if a U.S. retailer has a full understanding of what they are selling, then they can easily test out the waters in Canada by selling goods online first."
3. They set prices too high. U.S. retailers often times price their products at a premium in Canada to compensate for their investment in the country, and to account for its steeper operating costs, including a higher minimum wage and cross-border duties. This is a particular concern given how cutthroat the market is in terms of prices, Sozzi said.
Antony Karabus, the Toronto-based CEO of Hilco Retail Consulting advisory firm, said because a many Canadian consumers shop in the U.S., they are aware of stores' prices. As a result, they often refuse to pay prices they think are unreasonably higher. Both Target and J. Crew suffered backlash over this misstep.
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"Prices often have to be higher. The question is how much higher," Karabus said.
4. They take on too much too quickly. Opening 124 stores in one year was too big of an undertaking for Target, which didn't yet understand the intricacies of the Canadian market, Karabus said. Aside from a separate consumer base, these include a different set of government regulations and a different supply chain.
Karabus said the supply chain is particularly difficult to nail down in Canada because the country is so large, and the population so spread out. On top of that, the people differ significantly by city. For instance, in Quebec, the official language is French.
"It was a superhuman effort," he said of Target.
A.T. Kearney's Hillier said a further challenge lies in the constrained real estate market, which makes it difficult to secure top locations in the primary cities. What's more, Canadian provinces are not states, and "they have distinct rules and regulations and ways of engaging consumers."
5. They do not fill a hole in the market. One of Target's biggest issues was that Wal-Mart, Costco and domestic chain Giant Tiger have a huge hold over Canada's discount shoppers, Karabus said. The large penetration of discount retailers also played a role in Sears Canada's potential demise, as consumers looking for cheap products at a one-stop destination would rather shop at Wal-Mart or Costco than Sears, Sozzi said.
Karabus said retailers who will perform well in the country are those who offer Canadian shoppers something different than what is already being offered by a domestic retailer.
"If you have a unique differentiation you will do well," Karabus said.
6. They overlook domestic competitors. There are a number of popular retailers in Canada that already have a stronghold on shoppers' loyalty. Some of the country's most formidable names include Canadian Tire, which sells products from sporting goods to housewares, as well as Giant Tiger, Karabus said. Retailers also cannot disregard the country's major shoe chains—Aldo and Town Shoes, or men's retailer Harry Rosen, he said.
—By CNBC's Krystina Gustafson.