Target to end foray into Canada

133-store closure an opportunity for Wal-Mart to grow

A shopper exits a Target store in Toronto on Thursday. The Minneapolis-based retailer says it plans to close all of its 133 stores in Canada.
A shopper exits a Target store in Toronto on Thursday. The Minneapolis-based retailer says it plans to close all of its 133 stores in Canada.

Target Corp.'s pending exit from Canada presents Wal-Mart Stores Inc. an opportunity for further growth north of the border.

Declining sales and an unwillingness to invest more money in its struggling Canadian operations led Target to pull out of the market it entered in 2013. Wal-Mart, which expanded into Canada in the 1990s, is wrapping up a year of expansion there and seems poised to benefit from its competitor's decision to leave, some retail experts said.

Target will close 133 stores over the next five months.

"Wal-Mart has been there for years and has a nice, long track record of success in Canada," senior analyst Brian Yarbrough at financial services firm Edward Jones said. "This should have a positive impact on Wal-Mart sales. You're taking a player out of the market. It definitely benefits Wal-Mart in Canada."

Wal-Mart announced in February 2014 that it was investing between $500 million and $750 million in Canada during the fiscal year. The fiscal year ends Jan. 31, and the plan calls for 35 new supercenters and investment in e-commerce and in a new distribution network.

The plan also called for expansion, remodeling and relocation of existing stores in Canada at a cost of about $376 million plus another $91 million set for distribution network projects related to fresh food and $31 million for e-commerce projects.

An update on Wal-Mart's expansion plans was not available from the retailer. But Shelley Broader, then Wal-Mart's Canada president and CEO, said when the strategy was unveiled last year that "delivering on our commitment to help lower the cost of living is our top priority, and our growing network of supercenters and our expanding [online] offering enable us to do just that."

Target found the market much harder to operate and alienated customers shortly after opening with poorly stocked shelves and poor marketing efforts, Yarbrough said. The Minneapolis-based chain announced Thursday it was seeking approval from the Ontario Superior Court to begin its exit from the country. Chairman and CEO Brian Cornell said in a news release that the company could find no "realistic scenario" in which Target's Canadian division would be profitable before 2021.

Losses related to operating in Canada were expected to total about $5.4 billion for the fourth quarter, the company said.

"Personally, this was a very difficult decision, but it was the right decision for our company," Cornell said. "With the full support of Target Corporation's Board of Directors, we have determined that it is in the best interest of our business and our shareholders to exit the Canadian market and focus on driving growth and building further momentum in our U.S. business."

Cornell is a former CEO of Sam's Club, Wal-Mart's warehouse retail operation. His familiarity with Wal-Mart and his newcomer status with Target -- he was hired less than six months ago -- likely made the decision to close stores easier, said Randy Koontz, first vice president of investments for Pinnacle Wealth Management of Raymond James & Associates Inc. in Rogers.

Target hired Cornell from Pepsi in July.

"When companies bring in new CEOs like Target and Wal-Mart have done, it allows bold moves to be made," Koontz said. "New CEOs aren't married to existing problems and can act to change course. A new set of eyes often has a different view of solutions."

Target has offered to make a cash contribution of $59 million into an employee trust to assist its approximately 17,500 Canadian employees. It would allow for a minimum of 16 weeks compensation and benefits for employees who are let go before operations in Canada cease.

Wal-Mart has about 95,000 associates in Canada. It laid off about 1,000 Canadian employees in 2014, including 210 in November. Those layoffs were described primarily as being related to a new management structure.

Not all analysts are convinced that Target's exit will mean an increase in business for Wal-Mart. A research note distributed by Seeking Alpha, a content service for financial markets, suggests there might not be "much of an international opportunity for Wal-Mart in Canada. ... It seems the majority of Canadian-Target shoppers already discontinued their shopping at Target."

Business on 01/16/2015

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