04/17/2013 12:21 EDT

Target Canada Prices Resulting In Consumer Backlash: Analyst


Market analysts are turning sour on Target’s Canadian expansion, with one saying the retail chain appears to be facing a backlash from consumers disappointed with its prices, while another described the retailer's plans as “risky.”

After a strong opening for Target Canada, our checks suggest traffic has slowed below expectations in recent weeks, driven partly by Canadians’ perception that prices are too high, both relative to Walmart and Target’s U.S. locations,” Deutsche Bank retail analyst Paul Trussell wrote in a research note, as quoted at the Financial Post.

“While shoppers appreciate the higher quality assortment, especially in discretionary categories, the complaints on pricing were alarming.”

UBS analyst Jason DeRise warned this week that Target may be moving too quickly into Canada’s market and may not succeed in meeting its ambitious goals.

"Target will rapidly open its first 124 Canadian stores by year end. ... We think the expansion is risky as [Target] has little time to test its Canadian format,” DeRise wrote, as quoted at StreetInsider. He added he sees a “low probability” of Target meeting its sales goals in Canada.

Many early shoppers at Target’s new Canadian locations were disappointed to find prices on a similar scale to other discount retailers in Canada, and not on the scale of Target’s U.S. locations.

Target has defended its prices, saying it’s limited by the costs of doing business in Canada, and the president of the company’s Canadian division has suggested Canadians can always keep cross-border shopping at U.S. locations.

In a survey commissioned by the Globe and Mail, market research consultancy Kantar Retail found prices at Target Canada are 0.2 per cent higher, overall, than prices at Canadian Walmart locations.

Target’s American parent company has disappointed investors with its recent earnings reports. The company said Tuesday its profits for the first quarter will come in lower than expected, and sales will be flat.

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