Target Buys Way Into Canada
Last January, Target formally announced that it would seek
to build a presence outside of the U.S. market, but no sooner than 2013. With
yesterday’s announcement that the chain had agreed to spend roughly $1.85
billion to acquire the leases at 220 Zellers store sites in Canada with plans
to reopen between 100 and 150 of them under its own banner over a two-year
period beginning in 2013, Target is right on schedule.
“This transaction provides an outstanding opportunity for us to extend
our Target brand, Target stores and superior shopping experience beyond the
United States for the first time in our company’s history,” said
Gregg Steinhafel, chairman, president and chief executive officer of Target,
in a statement.
Mr. Steinhafel told The Wall Street Journal that more
than 10 percent of Canadians have shopped in a Target store and 70 percent
are familiar with the brand.
“Target has always been opportunistic about real estate,” Jeff
Klinefelter, an analyst at Piper Jaffray, told the Star Tribune of
Minneapolis. “It’s
a way to accelerate their share in that market and get established very quickly.”
Brian
Sozzi, an analyst with Wall Street Strategies, wrote in a research note, “One
word, finally. Not only is Target likely receiving locations where a comparable
cheap chic approach to retailing has been tested, it finally is preparing to
change the dialogue of the company being a U.S. only retailer. Better still,
it doesn’t appear that Target will leverage up its balance sheet to fund
its Canadian foray.”
The chain, which plans to invest another $1 billion
to renovate the sites it is acquiring, moves into the market getting ready
to face a familiar competitor. Walmart currently operates 323 stores in Canada.
David
Strasser of Janney Capital Markets, according to the Star Tribune report,
sees Walmart as holding the advantage over Target in Canada. Mr. Strasser
wrote in a research note, “Target will prove to be a more formidable competitor
to Wal-Mart than Zellers, which was notorious for poor execution.”
Target
announced that the company’s chief marketing officer, Michael Francis, will
oversee its move into Canada.
“With more than 25 years of experience with this corporation, Michael
has a deep understanding of Target and the retail industry. His responsibility
for corporate brand and reputation including our community relations efforts
uniquely position him to lead this effort,” said Mr. Steinhafel.
In separate
news, Target also said it is seeking to sell its remaining credit card receivables.
The company will retain marketing control of its credit card business, which
has gained momentum with the introduction of its five percent discount program
in recent months.
- Target Is Going Abroad — to Canada – The Wall Street Journal
- In a bold push, Target goes international – Star Tribune
- Target Corporation to Acquire Interest in Canadian Real Estate from Zellers
Inc., a Subsidiary of Hudson’s Bay Company, for C$1.825 Billion – Target
Corporation - Michael Francis to Oversee Target’s Entrance into Canadian Market
– Target Corporation - Target in Canada… finally – Financial Post
Discussion Questions
What is your reaction to Target’s announcement that it is moving into the Canadian market?
With the US market severely over-retailed and coming to grips with a slow recovery at best, I view this as the tip of the iceberg.
While operating north of the border will have its challenges, this looks like a great move for Target. It has an opportunity to cherry-pick most of the Zellers sites, and it will end up with a very productive portfolio of stores.
There is definitely a niche for an upmarket discounter like Target in Canada, since Sears occupies a more upscale brand position than it does in the U.S. and there is very little mid-market competition. (It’s also a good preemptive move vs. other U.S. retailers considering expansion to Canada.) Execution will be the key to Target’s success — not just its usual strong brand positioning.
I comment as someone who has dual citizenship.
Canadians will welcome Target without doubt…IF Target recognizes it is in a truly different country. Far too often, American companies think Canada is just an extension of the US only they talk funny and get free health care (but I digress), That is one fatal mistake. (Can you spell Krispy Kreme?) Even Walmart had some struggles until they woke up to this point. Corporate ego can really mess things up some times.
From the get-go the idea of having someone who I assume is an American head the expansion into Canada isn’t such a smart move. Listen to me–it’s different there!
OH–and please, let’s not have any old tired “eh” jokes in this discussion! Nothing irritates Canadians more!
Target has always been “Opportunistic,” and that operating model extends well beyond just Real Estate. This is a sharp move on their part, and they are likely to find a welcoming Consumer as they extend their Brand into Canada.
Solid move in putting Michael Francis, current CMO, in charge of the transition. Michael understands all the moving parts that have to be in place, and quickly and decisively builds the community relationships that guide so much of Target’s success as they enter/expand in markets.
Target kept their ‘powder dry’ during the downturn and with discussions with Wall Street hedge funds. They are positioned to successfully introduce the Brand to our neighbors to the North.
Walmart is rolling out supercentres at strong pace in Canada. Target will have difficult time at first because they lack name recognition. The Zellers store remind me of the old Woolco stores in Canada. Walmart bought them as a stepping stone to get into Canada. Target will go through the same learning curve as Walmart did. I doubt Target will be an overnight success but over the long term of 10 to 15 years, I think they will catch on. Target has never been a fast learner but over time, they usually get it right.
Clean thy glass eyes, o’ wily observers,
And like Minnesota’s opportunistic retailer,
See the rewards that thou otherwise may not.
Canada will be an initial struggle for Target,
trying to upgrade Zellered Halls of Shabbiness,
but eventually an upgraded shopping experience
is likely to be accepted north of the border
just as Walmart has won big south of the border.
Canadians everywhere are chanting “yeah” today. As one myself, we’re excited by a couple of things: the arrival of Target, and the removal of Zellers. Zellers long held a place in the shopping paths of consumers here, but competition chewed up their position of strength a long time ago.
Be wary though, Target. As noted by others above, we may look the same, but we are a bit different (ask Sports Authority, Sports Expert). Not knocking the choice of having an American lead the charge, but they would be wise to seed the senior management team with a few good leaders who know the marketplace here.
Target has more in common with the Canadian soft good customer than they have with the “Rebel” customer. They will do just fine and faster than this crew seems to think.
This move has been discussed for a long time, and Target fans in Canada will be celebrating. Interesting how many Toronto residents go off to Buffalo for shopping, always with a stop at Target–fun, unique products, good value for the money. Key will be location, and the Zeller stores should be in the right areas. Sam’s Clubs closed in Toronto after a few years–the locations were an issue.
If Target can deliver the shopping experience here, with good assortment and competitive pricing, they are sure to make inroads.
I have often wondered when Target would migrate to the Canadian market. It seems to be a logical first step. It would appear to be a win/win; especially the Canadian customers who will reap the benefits of the competitive nature Target and Walmart will bring. The locations they are acquiring immediately places them in a good position to launch this venture.
Doesn’t look like this is creating too much excitement. NRDC Equity Partners LLC bought Zellers parent two years ago for $1.1 billion and now they are selling its weakest portfolio of stores for 1.8 billion or 700 million in profit (64% gain in two years. Walmart and Sears are already in Canada and established with the consumer. As Canada’s population is growing at less than 1.5% annually, Target will be the new guy on the block, which should be good for trial but the pressure will be on to retain a high percent of trial.
I don’t imagine any of the current retailers will just roll over, so we can expect deep discounting and high marketing costs which should hinder system profitability. Target stock is down today, but the market is up. You figure it out.
While 2+2=3 for most retail acquisitions, this one certainly will generate a 2+2=5 results. The Zeller stores will be well upgraded in terms of operation as well as retailing by Target. Target does not have to make a greenfield foray into an already over-stored market (not as over-stored as the U.S., but still over-stored.) And it gives them an outlet for growth that doesn’t exist in the U.S.
Their biggest challenge will be Walmart, which will continue to operate better than Target could dream of.
While this seems to be both interesting and good news in its own right–at least judging by the few Canadian comments offered up here–I wonder what it says about the future of Zellers parent (HBC). With its purchase several years ago by American interests, The Bay has long been subject to speculation that it will be “converted” to some American nameplate, and I would think the virtual divestiture of the discount arm will exacerbate those rumors. And while such a move might be welcomed by our Northern Neighbor’s wallets, I would think their hearts and minds might feel differently (overwhelming Yankeeism probably ranking right behind “eh” jokes in unpopularity.)
I wouldn’t be as wary as some are about Walmart and Sears already being in Canada–they’re already in the good ol’ USA!
Sure Canada is different. If you don’t think so, I invite you to cross either of the two bridges or experience the tunnel across the border and find out quickly. Those crazy Canadians have French on their signs. Imagine that–French! They speak it too! Less than mile away, within eyesight across the river the signs are in English, Spanish and Arabic.
If Target focuses on delivering the type of stores they have here–experience, bright, clean, and yes, different from Walmart and Sears, they’ll do just fine. It may take some time to integrate some of the minor differences necessary in product selection, but they’ll do that well, too. A past episode of “How I met your mother” would probably not be the best training video. But it might have suggested large displays of Molson, great doughnuts, Tim Horton’s coffee inside the store, skate sharpening services, free hockey tickets and bright lights. Apparently, they are afraid of the dark? Nahhh…Owwt of the question.
Target will do just fine. They are one of the most improved retailers here in the past year. They’ll do just fine. They are listening here, responding, and winning. If they take that with them, it will do well towards their success.
Target Buys Way Into Canada…Good news! This is an important first step that many leading retailers must contemplate to achieve their long term growth objectives. With the U.S. retail market essentially saturated, Target needs to look beyond current borders for continued growth. This is no different than what Carrefour, Ahold, Walmart and others have been doing for years.
To be sure, it is still far too early to judge whether Target will be successful in extending its brand and positioning north of its Minnesota border. The brand has some recognition among Canadians already–but adapting its message and offering to Canadian needs and expectations will be no small task. (Just ask Walmart.) But they seem to have found an opportunity through Zellers–the price is right, and the time has come. I’d love to see them succeed.
This is a logical move for Target. The Zellers chain has been going nowhere for years. It is an older retailer and has some good locations. Many of the likely stores that will not become Target are simply too small. The Canadian market has 90%+ of its population living with 200 miles of the United States border. Many Canadians watch American television. The Canadian values and standard of living are close to ours. This could be a testing ground for real international expansion, primarily operating under a different set of government rules.
This was a savvy move by Target management. Taking over the Zeller’s leases has many advantages over trying to find locations and/or build their own stores. First is these are already established retail locations that consumers know. Second is the refitting will be less costly. Finally, Target can open several stores in the same day as they like to do. This approach allows Target to maximize their marketing investment and efforts. Very smart!
Target is a great organization and customer-centric in most of its activities. But is this too much too quickly? Will it strain the organization? Can the culture of Zellers and Target mesh? Will those who travel North to finalize and implement the deal be sensitive to the needs and desires of Canadians? Let’s hope so.
As an observer intimately familiar with the Canadian retail marketplace (former GM, Marketing of Kmart Canada among other roles), this is a true win/win/win.
HBC wins by unloading a retail banner that has struggled for almost two decades since the arrival of Walmart in 1994. Hopefully NRDC spends the windfall cash wisely on fixing their equally challenged Bay department stores. Canada deserves a better Canadian-run full line department store.
Target wins by gaining a powerful foothold in the Canadian marketplace without having to resort to a greenfield strategy, and takes out a competitor at the same time. ‘Greenfield’ is a hard approach in the Canadian marketplace – good big box locations are hard to find.
And finally, the Canadian consumer emerges as the biggest winner from the transaction. Zellers has long disappointed in trying to emulate Target’s success, and Canadians will quickly adopt the ‘cheap chic’ strategy as an alternative to Walmart’s downmarket product assortment.
My only question? The takeover of Zellers by Target has been rumoured for 10 years. Target executives have been seen in the HBC corporate offices since … well, a long time. Why did it take so long?
Smooth, savvy, strategic move.