Target’s big Canada rollout stumbles

Correction: Target Corp.’s expected loss on its Canadian operations last year is $800 million to $900 million. A New York Times article in Wednesday’s edition about Target’s expansion into Canada included incorrect amounts.

OTTAWA, Ontario - When Canadians crossed the border into the United States on shopping trips, Target was a prime destination. But when Target crossed the border last year and opened stores in Canada, the magic somehow vanished.

Lost in the turmoil over the theft of Target’s customer information in the United States has been the struggle of its Canadian expansion. Instead of reaching profitability by the end of the year, as Target had hoped, analysts expect that the company will report this week that the Canadian operations produced an $8 billion to $9 billion loss.

“The data breach seems to have come at a good time for them as they would have been answering questions about this,” said Rob Wilson, a retail analyst at the Tiburon Research Group in San Francisco. “ I’ve never seen a set of expectations that are so shockingly missed on a rollout.”

The causes of Target’s stumble in its first foreign excursion are varied. Wilson and others question the company’s decision to open 124 stores in a new market within months. Inventory problems have often led to empty shelves, and many of the stylish, exclusive brands Canadians see in Target’s American stores did not come north. And many Canadian shoppers contend that Target prices are much higher in Canada.

“We’ve been down to the States quite a bit and we’ve shopped at Target and we were impressed,” Nicole Chanansingh said after buying a stuffed toy for her daughter at a large Target store in suburban Ottawa. “So we were excited when we heard they were coming. But I don’t think it’s the same merchandise, not the same stuff at all. So, we’ll see.”

After opening more than100 stores in a year, the priority for Target Canada is improving operations, said Eric Hausman, a spokesman for Target. “The knowledge we gained in our first year will help as we focus on in-stocks and improving sales,” he said.

For its Canadian expansion, Target followed Wal-Mart’s 20 years ago. Like Wal-Mart, which is now Canada’s largest retailer, Target bought the locations of an ailing discount chain as a way around Canada’s shortage of desirable retail space.

In Target’s case, it struck a deal for the leases of up to 220 locations of Zellers, the last major Canadian discount chain, which was owned by the Hudson’s Bay Co. Hudson’s Bay, a full-line department store chain, is controlled by Richard Baker, the chief executive of NRDC Equity in Purchase, N.Y.

In its final days, Zellers tried to fend off Wal-Mart by copying Target right down to a red-and-white color scheme. Zellers’ results, however, were less successful with merchandise, outside of some clothing, often being more cheap than chic. Unpacked inventory often clogged the aisles of its stores, although the chain did have a reputation as a place for bargains.

With about 100,000 square feet on average, the Zellers locations are less than half the size of a typical Target in the United States, and many of the Canadian outlets are in more urban settings.

Several analysts and experts faulted Target for opening so many stores during the first year in Canada, especially when the spaces had to be rebuilt in Target’s image.

“Target took on a very big challenge,” said Elizabeth Evans, the associate dean of the Ted Rogers School of Management at Ryerson University in Toronto. “Most foreign retailers launch with a smaller number of stores.”

Business, Pages 26 on 02/26/2014

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