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01/19/2015

Target Canada to Close its Doors

After just two years, Target Canada has announced it is closing its doors. The retailer is retreating from its Northern overexposure as quickly as it expanded, closing all 133 locations and leaving 17,600 unemployed workers in its wake.

Despite high hopes for the indirect wholly-owned subsidiary, Target Canada Co., Target has decided to shutter the struggling enterprise and turn 100% of its attention to its U.S. operations. Target's decision to cease its Canadian arm was based solely on performance. The fact that the retailer is willing to cut bait on their significant investment in their only international market speaks volumes to CEO Brian Cornell's commitment to driving profitability.

“When I joined Target, I promised our team and shareholders that I would take a hard look at our business and operations in an effort to improve our performance and transform our company," Cornell said. "After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021. Personally, this was a very difficult decision, but it was the right decision for our company."

The decision to close Target Canada will increase earnings in 2015 and beyond, and increase available cash flow starting in 2016. The reason for the failure of the Canadian experiment are numerous, some of the most visible missteps include:
  • Expansion costs. The retailer acquired Zellers locations for its Canadian expansion, and invested nearly $3 billion in lease agreements, renovations and fixture upgrades. The huge upfront cost put the retailer behind from the start.
  • Merchandising miscues. Target Canada failed to connect with the market. The big red machine simply brought its American operations north and didn’t design Canadian-focused assortments, alienating its potential customer base and further solidifying the bond they had with the Canadian-based competition (Canadian Tire, Loblaw, Sobey's, etc.).
  • Inconsistent pricing. Although Target Canada relied heavily on its U.S. assortments to fill stores, the price tags were not consistent. Pricing was not on par with U.S. operations — Canadian merchandise was 20% higher on average — alienating shoppers who were expecting prices to be equal to the price structure in Target's U.S. stores.
  • Erratic supply chain. While U.S.-based Target shoppers can enter their neighborhood store and expect to find all of their desired purchases in stock, Canadian customers never enjoyed that level of inventory. Target Canada failed to appropriately gauge customer demand and shoppers often faced empty shelves and left with empty shopping carts.
  • No e-commerce presence. With no e-commerce shopping option, Target Canada felt a little dated despite being in the market less than two years. Had the digital shopping channel been available the retailer could have alleviated some of the disappointment brick-and-mortar shoppers felt when items were out of stock.
  • Rapid expansion. Despite a lack of deep understanding of the Canadian consumer, Target rolled out its stores at a breakneck pace averaging 12 openings per month. The hurried roll out didn't allow the retailer time to fully solidify itself market by market.  
In response to the announcement that Target will be closing its Canadian operations, rival Sears Canada announced that it will be offering discounts to all former Target Canada employees and invited all 17,600 workers to apply for jobs at Sears.