"We've already been dealing with the new Target people in Canada and I think we're going to be able to do good business with them," Dorel CEO Martin Schwartz said Thursday after the company's annual meeting.
The Montreal-based manufacturer of children's products, bikes and ready-to-assemble home furnishings said sales to Zellers were "OK," but that the big American retailer will grow and open more stores than Zellers ever had.
Zellers stores are slated to disappear as Target Corp. (NYSE:TGT) begins moving into Canada next year.
The U.S. retail giant is taking over leases at 189 Zellers locations in Canada and plans to open between 125 and 135 stores, while Walmart will take over 39 Zellers locations.
"Target is also a little bit more upscale so you're talking about maybe more medium price point goods," Schwartz said in an interview.
He noted that the U.S. retailer has been very supportive of its Eddie Bauer brand of juvenile products. And he expects some higher priced products sold widely in Europe and in North American specialty stores could become available for Target's Canadian customers.
Dorel (TSX:DII.B) said its strategy is to create products unique to mass merchant retailers like Target and Walmart so they're not selling the exact same items.
"We'll adjust for Target the same way we adjusted for Walmart or any other big retailer," Schwartz said.
While efforts to improve its Canadian sales will help, an improved U.S. economy would be a more significant driver for the recovery of Dorel's juvenile business.
Dorel's juvenile segment just had its best quarter in a year, but first-quarter earnings were still down nearly 13 per cent compared with a year ago at US$20.7 million on US$269.5 million of sales.
U.S. retail sales have increased in the last couple of months and should improve barring a dramatic impact from a possible recession in Europe, he added.
Dorel is targeting China this summer for sales of its expensive bicycles.
Instead of adding another bike brand, Schwartz said the company is looking for a complementary bike shoe business or parts and accessories firm to expand its recreation and leisure offering.
Out of the question is adding a fourth operating segment, Schwartz said.
"There's still a lot that can be done in each one of them so we're not going for a fourth — that's not going to happen."
Overall, Dorel's profit decreased 6.4 per cent to US$29.2 million on US$621.1 million of revenues in the first quarter.
The recreational/leisure segment had its best quarter since Dorel entered the bicycle business in 2004. Total revenue grew 10 per cent to US$220.9 million.
On the Toronto Stock Exchange, Dorel's shares lost one cent at C$26.92 in afternoon trading.