Target Corp. will likely make a decision within the next few months on whether or not to “pull completely” out of Canada, a prominent retail analyst says.
Brian Sozzi of Belus Capital Advisors, one of the first analysts to note Target Canada’s problems with empty shelves, says he expects the retailer’s new CEO to make a major decision on the company’s future in Canada no later than its earnings call on Feb. 25.
In a blog post this past weekend, Sozzi noted Target’s Canadian operations have been “dead weight” to the chain’s balance sheet, losing $2.1 billion U.S. so far.
Target could sell at least some of those stores to Walmart, which “views Canada as ripe for epic domination,” Sozzi said.
That’s speculation, but it’s not without foundation: Sozzi notes that Target’s new CEO, Brian Cornell, is an alumni of Walmart, having previously served as CEO of Walmart’s Sam’s Club chain.
Cornell and Walmart CEO Doug McMillon worked at the company at the same “which may make brokering a deal easier for Target,” Sozzi says.
Sozzi is not the only analyst eyeing Walmart for Target’s Canadian assets. The Arkansas-based retailer “is the logical buyer for Target’s Canadian stores,” wrote Nelson Smith at the Motley Fool.
“Adding some 140 Target stores isn’t such a big deal for a company with nearly 400 stores of its own” in Canada, Smith wrote.
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This one, as you are probably aware, is already out the door. Target announced on Jan. 15 it is leaving the Canadian market, having lost some $2.1 billion on its whirlwind foray north of the border.
A few months ago it looked like Jacob was already gone, with the Quebec-based fashion boutique filing for bankruptcy and announcing plans to close all 92 stores. But a Quebec court has given the retailer until later this month to come up with a plan to save some of its stores.
The Canadian division of Sears has been bleeding money and has tried to stanch it by selling off leases to some of its highest-profile locations, not to mention layoffs by the thousands. But those moves didn’t stop the retailer from doubling its losses in the most recent quarter. The chain’s Chicago-based parent company is mulling selling the Canadian division. But in this era of big box department stores struggling against online retailers, it’s hard to see who would buy Sears Canada.
Montreal-based Reitmans said a few years back it wasn’t worried about Target’s arrival in Canada -- it had survived Walmart and The Gap, after all. Two years later, the retailer that owns numerous fashion chains, including Smart Set, Addition Elle, RW & Co. and Penningtons, is shrinking. The company last year opened 25 new stores, but closed 58. that still leaves it with 878 stores. Profits for the 2013 fiscal year shrank by nearly 60 per cent.
If you've stepped into an Indigo recently, you can be forgiven for wondering whether the retailer still sells books. With e-books and online book retailers putting big-box bookstores under pressure, Indigo is busily diversifying its product offerings to include "lifestyle items" such as candles and gifts, but will it work? Indigo is growing its online sales by the double digits, but they still only account for some 10 per cent of total sales. The U.S. big box bookstore Borders closed a few years back. The idea that Canada's last remaining big box book chain could follow seems less unthinkable with every passing day.
Aeropostale was a growing brand in Canada until about 2012, opening an average of nine new stores per year. But last year it began shrinking, and now has 51 stores in Canada, down from 58. The chain appears to be suffering from a potentially fatal problem: Teens don't think it's cool anymore.
Layoffs at Best Buy Canada and its sister chain Future Shop have numbered in the thousands over the past few years. The CEO of the Minnesota-based company described Canada this spring as a "very, very soft" market for electronics. Best Buy doesn't break out numbers for Canada, but its international division (Canada, Mexico, China) saw sales plunge 10.5 per cent in the first quarter, with same-store sales down 5.8 per cent. The chain is one of the most prominent victims of "showrooming" -- customers coming in to check out products, then buying them at lower prices from an online competitor.
Le Chateau is shrinking. The chain opened one store last year, and closed seven. It now has 228 retail locations, down from 243 in 2011. The company's shares were trading at $15 as recently as 2010; they are now hovering around $1.50.
Other analysts have suggested Target would be wise to cut its losses in Canada.
“It been a complete disaster,” Scott Mushkin, managing director of Wolfe Research, told BNN a few weeks ago. “Their sales per square foot [in Canada] are $140 and we think break even is $250.”
Mushkin estimated Target would have to raise sales by 21 per cent per year for the next three years in order to survive — a tall order, given the company has been struggling to grab market share from Walmart, Loblaws and others.
Sozzi noted that Target’s struggles in Canada are so top-of-mind for the company that CEO Cornell visited the Canadian team almost as soon as he took up his new job last August.
Target Canada saw a leadership shakeup last year, following a string of bad publicity that included supply chain problems and the perception that the store’s prices aren’t competitive with Walmart and other chains.
But a survey carried out this fall found prices at Target Canada were 3.9 per cent lower on average than prices at Walmart Canada.
Target has been moving aggressively to turn things around. The company launched a price-matching guarantee and brought some 30,000 new products into Canadian stores ahead of the holiday season.
Sozzi says unloading its Canadian operations would allow Target to focus on a potentially more lucrative strategy: Opening up smaller urban locations around the U.S.
The company has recently opened several City Target locations in places like downtown Seattle and San Francisco, and is currently launching a handful of mid-sized TargetExpress locations in Minneapolis and elsewhere.