After Only 2 Years, Target Pulls Out Of Canada
MINNEAPOLIS (WCCO/AP) — Target is giving up on its money-losing foray into Canada after just two years, closing 133 stores and cutting loose more than 17,600 employees.
Target said it didn't see how it could stop losing money before at least 2021 on its first international expansion. The closing links Target with a series of other retailers who have learned the hard way that the northern border is tough to cross.
Target Canada customers had complained about product shortages and high prices at stores.
Some analysts believe one of Target's mistakes was to open 133 Canadian stores in 2013 instead of opening a handful in key Canadian markets to see what worked.
From the start the roll out was a disaster. Pictures posted on a blog by a Wall Street analyst showed one of the biggest problems -- store shelves were often empty because Target Canada had consistent supply problems that kept getting worse.
Analyst Brian Sozzi, CEO of Belus Capital, posted those pictures in a blog last year noting at the time he was telling his clients to sell off their Target stock. Sozzi said, "the company rushed into Canada and they didn't think through what they need to do to set the foundation to operate the stores profitably."
Cracking the Canadian retail market, about one-tenth the size of the U.S. and right next door, looks simple. Target's difficulties show it's not. There are costly regulations. In addition, most Canadians live near the U.S. border, compare prices religiously and are willing to shop in the U.S. to save money.
Canadian shoppers were more blunt in their assessment.
"Shame on them for opening here with exorbitant prices compared to the U.S.," said Lauren Tinto, 35, of Toronto. "They think we're idiots or something."
There's also increasing competition. Canadian standbys like Dollarama and Canadian Tire are formidable rivals. And Wal-Mart Stores Inc., already the biggest retailer in Canada, cut prices to fend off Target.
Largely as a result of the closings, Target said it will report $5.4 billion in pretax losses in the fourth quarter.
During a call with investors Thursday, CEO Brian Cornell described the decision as "very tough," but also said "it was the right decision for the company." University of St. Thomas marketing professor Dave Brennan agreed.
"The bleeding would have continued on for years and years," he said. "To be able to take the pain out of the way, it's better to take the pain up front then spread it out over a longer period of time."
The Canadian stores will remain open as the stores liquidate their remaining merchandise.
The company's stock gained $1.45, or 2 percent, to $75.78 in midday trading Thursday.
Analysts say they expect Target to be gun-shy now about international expansion. Instead they expect Target to expand into underserved urban areas with smaller stores like the one in Dinkytown.
No impact is expected local for consumers, and as for Target corporate employees, analysts say this is also good news because Target will perform a lot better financially without the weight of these Canadian losses.
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