Analyst Speculates Target Could be Eyeing Canadian Exit Through Sale to Loblaw or Wal-Mart

Fri. October 24th, 2014 - by Kyle Braver

MISSISSAUGA, ON - After investing over $6 billion in its Canadian operations, could Target be considering withdrawing from the Canadian market? Retail Analyst Perry Caicco of CIBC World Markets suggests that if its market doesn't shape up by the end of 2015, it very well might.

“[So far] we have seen few examples of remarkable improvements,” he remarked. “The shelves and displays do not appear to be stocked much better, the pricing and value strategy make little sense to us, and there are few exciting new programs in most parts of the store.”

“Target has been a disaster in Canada, producing sales at about half of our initial projections, and running deep operating losses,” he concluded.

According to the Globe and Mail, Target executives attribute much of these early struggles to overzealousness when launching Target's Canadian expansion in 2013. 124 stores in one year proved to be too much too quickly and resulted in operating profit losses of almost $1 billion on sales of $1.3 billion. Similar ill news carried over into 2014, during which Target opened 9 more Canadian locations, but watched as its operating losses grew 11% to $415 million during the first fiscal half of the year. In Q2 2014 same-store sales at locations open at least one year fell 11.4%.

In all, Caicco predicts that Target will lose about $1.2-billion in its first two years of operations in Canada, according to the Globe and Mail. If this trend is not reversed, he argues that the best course of action might be a departure.

If Target does leave, the most likely suitors for its hundreds of retail locations would seem to be fellow retail giants Wal-Mart and Loblaw, although Shoppers Drug Mart and Hudson's Bay Co. have also been included in speculation, according to the Globe and Mail.

For now however, Target Spokesman Eric Hausman revealed that Target's focus is on ending 2014 on a strong note through the holiday season and carrying that momentum into 2015.

"Target's focus is on driving improvements to the business, and as we have shared previously, we look forward to continuing to assess our progress, the work ahead, and the opportunity in the Canadian market,” he shared in an email with the Globe and Mail. “With the fourth quarter just around the corner, our teams are focused on ensuring we offer guests an exceptional shopping experience this holiday season."

If Target does decide to hold an asset sale, he shared that the retailer would certainly work to retain a Canadian presence and “try to squeeze some value from this tough decision.”

Stay tuned to AndNowUKnow for future updates on Target's Canadian operations and the strategic operating decisions the company makes going forward.