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Target considering pulling out of Canada after US$2.1-billion in losses

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DH Vancouver Staff Jan 07, 2015 2:11 pm

Target Canada is expected to make a decision early this year on whether to leave the Canadian market after continued financial reports of heavy losses.

Retail analyst Brian Sozzi wrote on a MSN Money blog post that Target’s recent foray into Canada has been “dead weight” on the company’s financial statements – losses of US$2.1-billion from 2011 to the third quarter of 2014 have been recorded.

There is speculation that newly appointed Target CEO Brian Cornell, a former executive with Walmart, will make the announcement on major business changes on February 25 as part of the company’s fourth quarter announcement for 2014. It will include the findings of a thorough review of the company’s businesses on both sides of the border.

Sozzi says it is conceivable that Target could offload its worst performing locations to Walmart or even make a complete exit from the Canadian market.

In 2011, Target spent $1.8-billion to acquire the leases to 133 Zellers stores owned by the Hudson’s Bay Company. However, there was a high cost of entry and the competition from other Canadian retailers was fiercer than anticipated.

To make matters worse, the company decided to open most of its Canadian stores at the same time meaning there was no opportunity to identify and work out any issues unique to the Canadian market.

There have been difficulties with managing the stores – an inability to meet demand and inexperience with maintaining proper inventory.

Changes with its store operations were promised in 2014, but Target Canada has been unable to shake off the negative publicity from its launch and the perception of empty shelves and uncompetitive prices with Walmart, Loblaws and Sears.

Canadian consumers used to shopping across the border have also complained that Target Canada does not offer the same low prices and variety of products as American stores.

Scott Mushkin, an analyst with Wolfe Research, recently told BNN that Target Canada breaks even with sales of $250 per square foot, but currently it is only achieving $140. In order to reverse the losses, Target Canada would need to increase store sales by 21 per cent annually over the next three years.

 

Feature Image: Target Canada via Shutterstock

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DH Vancouver Staff
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