While it won't open shop on Canadian turf until March, eager deal-seekers have been buzzing for much of the past year about Target's low prices and chic fashion offerings.
Target Canada throwing its heft into the country's competitive retail mix promises to be a catalytic moment that could be the biggest game-changer since Walmart set up Canadian shop two decades ago. It might also plow down the doors for more foreign retailers closely watching Target's performance north of the border.
"The sky is not going to fall on all other retailers, (Target is) really going to make everybody else that much sharper, that much better," says Jim Danahy, CEO at CustomerLAB and a veteran retailer himself.
"It is going to force all retailers in Canada, regardless of who owns them, to elevate their game. They're that good — they're good at service, they're good at supply, they're good at design."
In 2013, Target will open the first of between 125 and 135 locations once owned by Canadian retailer Zellers, and is spending about $10 million per store to upgrade and in some cases triple the existing square footage.
Most retailers are quick to say they're unfazed by the entrance of the U.S. retail giant. Still, many big retailers, including Shoppers Drug Mart (TSX:SC), Hudson's Bay Co. (TSX:HBC), Canadian Tire (TSX:CTC.A) and Loblaw (TSX:L) have scrambled in the past year to take steps — from job cuts and management shakeups to capital raising and renovations — to cope in an increasingly competitive landscape.
"It will cause Canadian retailers to up their game," says Lori Bieda, executive lead of customer intelligence in the Americas for SAS Analytics.
Retailers are investing more heavily in data collection, using information on their customers to be more accommodating and efficient, something U.S. retailers have done for years, she says.
"Certainly size can be daunting when you get a player of that size coming into one's market, but being smarter with the investments that you make is also a very distinct competitive edge."
Target's arrival is also a huge win for consumers as it will create better choice, provoke more price competition, as well as force some outdated retailers to modernize, Danaghy says.
"That class of large departments stores are the ones that have gone through a bad patch, a whole generation and they're the ones who will suffer if they don't make the change," he says.
"They must invest in exclusivity of product, in uniqueness of service offerings, and they've got to put millions into their stores so they are beautiful as well."
In a report assessing the impact of Target's arrival, released this fall, Barclays Capital said that Walmart, Sears Canada (TSX:SCC), Old Navy, Loblaw's Joe Fresh brand and Canadian Tire are the retailers most at risk.
"Over time the greatest risk to established retailers is the permanent change in customer traffic patterns that Target could induce,'' it said.
Some Canadian retailers, like the struggling clothing chain Reitmans (TSX:RET.A), have said they welcome Target because those stores will draw more consumers into malls, even though Target operates in its cheap chic fashion space.
HBC, which launched an initial public offering earlier this year partly to pay down debt after a years-long store rejuvenation program, also faces a tremendous competitive challenge. Analysts say the Canadian department chain overlaps in several areas with Target, and it is also preparing for the arrival of high-end competitor Nordstrom.
This fall, the company transferred some 130 jobs from Canada and eliminated another 80, part of a plan to adjust its operations now that its Zellers chain is being phased out both through the takeover of some locations from Target and the closure of most of its remaining stores.
However, HBC president Bonnie Brooks said she was "not at all" feeling the retailer would be squeezed by the arrival of Target and Nordstrom, adding she was "excited" to have them.
"We don't really overlap with many products or many brands certainly with Target," she said in the fall, though some analysts have suggested differently.
"At the upper end, we're not the top end player in the market we fit snugly underneath them, so we don't really have a lot of overlap with Nordstrom."
Danaghy imagines Target's arrival could have the most catastrophic effects on Sears Canada's struggling operations, as Target invests millions on revamping stores, while the "tubelights are flickering and the linoleum is peeling at Sears."
Sears has announced the closure of four prime store locations in three cities — Vancouver, Calgary and Ottawa.
After Nordstrom announced it would pick up those locations for its first Canadian stores, Danaghy says he wouldn't be surprise to see another U.S. department store giant swoop into Canada in the next few years to buy up Sears's remaining locations.
Danaghy says Target may cause some downward pressure on prices for an array of goods, but likely wouldn't cause a price war as many large retailers — especially the grocers — are already highly competitive. However, he adds it could sort out the strong from the weakest players in the Canadian retail scene.
Though groceries are not currently at the forefront of Target's Canadian plans, Loblaw Companies Ltd. (TSX:L) will see the most impact among supermarket chains as its Joe Fresh clothing line will compete with Target in the discount chic clothing space.
Loblaw Co. Ltd. announced in October it is cutting about 700 jobs, mostly management and administrative positions at its Toronto-area head office, to reduce costs in the face of stiff competition.
Meanwhile, Walmart Canada has said it is confident it's prepared for Target's arrival. As part of its plan, it will lower the prices of more items to about $1 as it also answers to the expansion by Canadian dollar store operator Dollarama Inc. (TSX:DOL).
And Canadian Tire is working aggressively to carve out a bigger share of the market before Target arrives and recently announced a downsizing of its executive ranks.
Even Leon's Furniture Ltd.'s (TSX:LNF) acquisition of Canadian rival The Brick (TSX:BRK) was touted as a way to strengthen Leon's position to compete with American corporations, though it didn't mention Target by name.
Other major Canadian retailers such as Shopper's Drug Mart and Jean Coutu (TSX:PJC.A) are also making preparations to prepare for the competitive threat of Target, which will have a pharmacy segment — a lucrative way to draw customers into stores.
For its part, Target is mostly eschewing the question of how it could redraw the Canadian retail landscape, except to say it believes it "results in more choice for Canadian consumers and increases competition in the marketplace."
"I do think it will actually generate traffic in malls where maybe that's been a concern over the last little while, so I do think it's a good thing, particularly for the consumer," said spokeswoman Lisa Gibson.
Perhaps the biggest impact of Target's arrival, however, will be the stamp of approval it gives Canada as an increasingly attractive market for foreign retailers.
This year was a banner one for international retailers setting up shop north of the border, with big names Ann Taylor, J.Crew, Kate Spade and Microsoft moving in.
"They realize the U.S. landscape is probably saturated with a particular offering, and therefore, need to seek alternative venues or markets in order to ensure that there's continued growth within their brand," said Yorkdale Shopping Centre's general manager Anthony Casalanguida, a few days ahead of the opening of the Toronto mall's new expansion wing.
Bieda of SAS Analytics said an increasing number of international retailers working with her firm are interested in Canadian expansion.
"The bulk of that has to do with the health of our economy and organizations wanting to expand into markets that are healthy, where we've got people with disposable income, who have the ability to purchase product and able to bolster up such organizations."
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