Target Canada – U.S. Retail Giant Takes Aim at Canadian Expansion

Target_Canada_703671865
By Angus Gillespie

On the surface it may appear as if Target Corp.’s decision to enter Canada would automatically lead to increased retail wars with the likes of Walmart, the North American leader and an entity which has gone largely unchallenged since its entrance north of the border in 1994.  But Target Canada is taking the approach that our country is large enough for a number of retailers to not only survive, but thrive.  

No doubt there will be some crossover manoeuvring where each of the two aforementioned retailers will look to capitalize on those non-committal consumers caught somewhere down the middle.  South of the border, Walmart and Target have been in competition with one another since the early 1960s.  The late Sam Walton founded Walmart in Arkansas in 1962, and now, 50 years later, it is by far the largest retailer in Canada and the U.S with more than 2 million employees worldwide and an astounding $15 billion in revenue last year. 

Target Corp.’s origins date back to 1902 when founder George Dayton opened the Dayton Dry Goods Company in the state of Minnesota.  As a division of Dayton, the first Target store was opened in 1962 and it soon became the largest and most successful division of Dayton Hudson Corp.  The official name was changed to the current Target Corporation in the summer of 2000.  With corporate headquarters in Minneapolis, Minn., Target is the second-largest American retailer with 1,755 stores in 49 American states.  Whether the long-term corporate strategy is to make a push and challenge Walmart for top spot overall here in Canada remains to be seen.  

The New Target – Canada 

Tony Fisher was named President of Target Canada on January 18, 2011.  His primary responsibilities will be aimed towards building a strong team at headquarters and spearheading the day-to-day operations.  He joined Target in 1999 and has held a variety of leadership positions over the past 13 years. 

“This was about international expansion and it didn’t start with the focus just on Canada,” Fisher says, during an interview with CBJ.  “There were a number of things we looked at, including entering a country that had a vibrant economy, a high quality of life and a well-planned infrastructure that supports a wide variety of businesses.  When we narrowed it down and prioritized the list of potential market entries, it was very clear to us that Canada was at the very top of the list.”

It is evident Target Canada is coming into this venture backed by an iron-clad business plan and the necessary resources to succeed, having put a great deal of thought into such a move.

“This presents a tremendous growth opportunity for our company,” Fisher says.  “The fact we’re going to be able to open roughly 130 stores within in our first 12 months of being here is a tremendous undertaking.  To be able to plan that within a two-year time frame is significant.”

“In terms of timing, we started in 2010 to think about what our opportunities were to come into this market – would it be a Greenfield strategy, would it be an acquisitions strategy, would it be a real estate strategy,” Fisher states.  “What we landed on is that we wanted to make sure we built our own supply chain and technology and staffed it with a team we knew would be successful here.”

One of the first steps towards developing a presence here in Canada was to acquire properties, with the preferable route being the purchase of existing buildings and then making the necessary renovations rather than starting from scratch.

“The deal we struck with Zellers on the real estate transaction side gave us the opportunity to do all those things and then some,” Fisher reveals.  “We closed that deal in January, 2011 and here we are just more than a year later and we’re about halfway through the journey between when we started and when we open our first stores.”  The redesigned Zellers locations will be enhanced by multimillion dollar upgrades with the company spending an average of about $10 to $11 million on each locale.  A complete nationwide rollout of up to 135 stores is anticipated by the end March, 2014.

Speaking of real estate and buildings, headquarters for Target Canada is comprised of about 180,000 square feet of remodelled office space in the Greater Toronto Area, at 5570 Explorer Dr. in Mississauga.  Target has spent a good deal of time and effort analyzing data as it pertains to the Canadian retail market including demographics, competition and market potential in order to come up with the premium areas for a Target store to be situated.  Staffing the large office space is an ongoing process. 

“In the early stages, obviously we started with a team that was built on our Minneapolis foundation and I had a team of people that were working in finance, supply chain, merchandising, operations, stores and human resources,” Fisher says.  “That is now transitioning such that half the team is in Minneapolis and half outside.  Eventually I foresee the entire team based in our Mississauga office.” 

During the first week of February, there were about 75 people working with Fisher at the corporate head office, but by the following week that number had almost doubled with additions primarily in the merchandising pyramid. “Within the next few months that number will probably be north of 300, and by the time we open stores we expect that number to be double that,” Fisher declares.

Late last month, Target Canada held a one day pop-up store on King Street in downtown Toronto, with world-renowned fashion designer Jason Wu on hand for the publicity event, which attracted upwards of 1,500 bargain hunters.  A $10 scarf proved to be the most popular with shoppers, becoming the first item to sell out.  Within five hours, all 2,500 items were gone.  The approximate $60,000 in sales has been donated to the United Way of Toronto. 

Phase One Rollout

Although the announcement of Target’s planned expansion into Canada originally came early in 2011, it wasn’t until just recently the company unveiled the specifics of its first rollout phase, which includes 24 stores, all of which are located in Ontario and are expected to be open to the public by April of next year.  

“The market is a fantastic place to open our first stores,” Fisher emphasizes.  “It’s the central place for retail and many headquarters are based here.  There’s an excitement for the Target brand with a number of people being Target red-card holders.  We plan to open in the Greater Toronto Area first and then work our way west and then come back in the latter part of 2013 and work our way east.”

Joseph Aziz is a senior retail business analyst and CEO at Scriptarus Solutions Inc. in Montreal.  He is of the opinion Target Canada made a smart decision to base its initial entrance into Canada in the Greater Toronto Area and spread out from that central point. 

“The share of Ontario accounts for about 25 per cent of all retail sales across the country,” Aziz notes.  “Ontario is a mix of cultures so it’s always wise to start there as the test and then expand to other provinces.” 

Target had the initial option to take up to 220 leaseholds belonging to Zellers and exercised the option on 189 of those locations.  Of the 189 lease acquisitions, Fisher plans to open up to 135 stores.  The balance of the leases will be disposed of in an assortment of ways; the largest transaction to date is the purchase of 39 properties by Walmart.  It’s an impressive and aggressive introductory number to be sure, and represents slightly more than one-third of Walmart’s current total of 329 outlets coast to coast.

Each location will have between 150 and 200 team members.  Fisher expects to initiate the hiring process starting in the middle to the latter part of this year.

The time frame will vary depending on when a specific market’s store is opening. 

“The exciting news for the communities we will be doing business in, is that in many cases it will be about double the team members currently in those locations with Zellers,” Fisher reveals.

A big question really isn’t whether Target takes away an appreciable market share from Walmart, but rather some other retailers who are sitting in a far more precarious situation in terms of tight financing and margins. 

“It’s a very competitive market and I think the good news is there’s lots of competitors in this market that we’re used to doing business with and there’s also some new competitors; and that competition will only make us better,” Fisher says.

It is the opinion of Aziz that Target’s entry to the Canadian retail market will provide a very interesting dynamic to say the least. 

“Target is more of an upscale store, so that will change the landscaping of the retailers,” Aziz offers.  “Walmart has been here for 20 years and will continue to do well.  For Target it will take some of the customers of some of the other upscales such as Sears and boutiques.”

Pricing and Branding Go Hand in Hand

While the public is no doubt hopeful pricing wars will ensue in order to save themselves a few dollars in the pocketbook, Aziz sees more branding options as being one of the main factors with Target entering the market.  There has been a general perception that Target’s pricing in the U.S. is higher than some of its competitors, but the balance to that is in providing its consumers with many higher-end products.

“Pricing is going to be something that we definitely have to be very keenly focused on,” Fisher candidly admits.  “Our goal, just as in the U.S., is to be comparable with the lowest prices in the marketplace and we are coming into Canada with that same commitment.” However, Fisher points out that trying to match up potential pricing schemes here and with what happens south of the border may be like comparing apples and oranges. 

“I think from a pricing perspective, it’s difficult to compare our Canadian prices to the U.S. prices,” Fisher opines. “For one, we haven’t established what those retails will be and I haven’t even established with the team what the assortment will be. But I think there are things that will drive pricing disparity between Canada and the U.S. – things like: higher real estate charges, higher supply-chain costs and less scale across a vast geography compared to the U.S.  I can tell you we are committed to being equivalent to the lowest prices in the marketplace on like-items in those markets that we do business in.”

There are definitely certain holes and weaknesses in the retail marketplace that are open to being exploited, which could result in a number of consumers showing a stronger affinity towards Target Canada.

“Target has something that Walmart abandoned in the past few years,” Aziz says.  “When Walmart started to go with one brand, branding their own goods, many customers didn’t like that.  They want to see variety, and Target has that.  It depends on how Walmart reacts and whether or not they’ll abandon their mono-branding policy and start going back to the multiple varieties so they can appeal to more customers.”  If not, the option of having more brands to select from will certainly weigh heavily in Target’s favour. Further to that, it will be worth monitoring as to whether or not Target opts to delve into any in-store partnerships such as fast food, full grocery or pharmacies within their stores, much like the Walmart-McDonald’s tandem. That’s a topic Target Canada is remaining tight-lipped about for the time being. 

“We haven’t announced any partnerships coming up on the inside of the stores at this point, but what I can tell you is that with the wide variety of stores and locations that we’ve acquired from Zellers, our priority is going to be maximizing our selling space on the sales floor,” Fisher reveals.  “If there are opportunities for other businesses, that is something we’ll continue to explore; but right now our priority is making sure we put the right merchandise on that sales floor and maximize that selling space.”

Aziz is of the opinion that when it comes to partnerships and diversifying, Target should focus on its core business right now and in the foreseeable future.

“I would say its better they stick to what they know,” Aziz remarks.  “Walmart didn’t go into this right away; they did it very smartly.  When they opened here they started measuring the market and then started going slowly but surely and very strategically.  Walmart has been here for 20 years.  One of the good things Walmart did when they first came in was hire former Woolco and Woolworths employees when they took them over because they understood what was needed and expected,” Aziz continues.  “Many of the people, including the heads of the company were Canadian and knew exactly what Canadians want.

Target might do it in the long term, but I don’t think in the short term they should do anything differently than what the people know about Target in the U.S.”

Fisher also brushes aside any notion of a direct competition with Walmart or any other specific retailer on the corporate agenda at this point. 

“As far as where we’re going to rank in the overall scheme, that’s not where our focus is right now,” he affirms. “But I can tell you that we are definitely focused on continued growth once we open this first group of stores.  We see potential for more than 200 stores in this market, but that’s going to be a build over time, with additional possibilities of Greenfield stores where you build from the ground up, or if the right real estate comes available; that’s something we’ll consider as well.  Right now our focus is opening that first full year of stores’ cycle and successfully launch this first international expansion on behalf of Target and continue to grow over time.”

In related news south of the border, Target Corp. is now in the process of buying back another $5 billion in shares under a repurchase program which is likely to be wrapped up within the next three years.  This is on top of a current $10 billion program due to finish by this May or June.  Such moves are typically initiated to allow a company to reinvest in itself with the primary goal of increasing share values.

www.target.ca

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