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Target to close all 133 Canadian stores

Target to close all 133 Canadian stores

Posted by Juan Gavasa on January 15, 2015

U.S. discounter Target Corp. (TGT.N 2.18%) is closing its money-losing stores in Canada after almost two troubled years here.

The Minneapolis-based retailer said on Thursday it filed an application for protection under the Companies’ Creditors Arrangement Act with the Ontario Superior Court of Justice in Toronto.

“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,” said Brian Cornell, who became the new chief executive officer last summer.

“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,” he said in a statement.

THE FALLOUT

With 133 stores in Canada and about 17,600 employees, Target expects to report about $5.4-billion (U.S) of pretax losses on discontinued operations in the fourth quarter of 2014, mainly as a result of the writedown of the company’s investment in Target Canada along with costs tied to leaving this country and operating losses in the quarter before Thursday’s court filing.

Target expects to report about $275-million of pretax losses on discontinued operations in fiscal 2015.

Target anticipates its cash costs to discontinue its Canadian operations to be $500-million to $600-million, most of which will occur in the retailer’s 2015 fiscal year or later. It said it has enough resources to fund these expected costs, including cash on hand and ongoing cash generation from its U.S. business.

It said it expects its decision to shore up its profit in the coming year and beyond while increasing its cash flow in fiscal 2016 and beyond.

Target suffered from weak sales soon after it launched its first stores in Canada in March of 2013. Customers complained that shelves were often bare and that prices were higher than those in Target’s U.S. stores. Or they were disappointed that some products they bought at the chain south of the border weren’t carried in the stores here.

Target also grappled with competitors that focused heavily on improving their operations before Target’s much-touted entry here. Wal-Mart Canada Corp. added more stores and expanded its grocery offerings, which tend to bring customers back to stores more frequently. Canadian Tire Corp. Ltd. acquired Forzani Group Ltd., which owns Sport Chek and other sporting goods chains, while the country’s biggest grocers bulked up: Loblaw Cos. Ltd. acquired Shoppers Drug Mart Corp. while Sobeys Inc. took over Safeway Canada – moves aimed at boosting their operations.

Target put in new leadership last spring and began to overhaul its Canadian operations. Mr. Cornell said in November he was monitoring the chain and customers’ response, which would “inform our perspective as we continue to assess our longer term potential in Canada.” But he said to succeed here the retailer needed “a major step-change in performance.”

Target’s decision to exit Canada surprised many industry watchers, who thought the retailer would use its deep resources to ride out its Canadian troubles and turn around the operations.

“I never would have believed it,” said David Ian Gray of retail consultancy DIG360 in Vancouver. “I would have assumed they would have stayed the course, maybe shutting a whack of stores.”

He said Target’s decision must have been driven by short-term investor pressure as well as Target’s own challenges in its U.S. home base, including fallout from a massive data breach in late 2013.

Target is struggling with trying to return to its traditional strength of cheap-chic fashions and home décor merchandise as well as catching up to rivals on the e-commerce and digital front.

The repercussions of Target pulling out of Canada could be huge for incumbent rivals, retail analyst Perry Caicco at CIBC World Markets has warned.

Wall-Mart would be the most obvious buyer of Target stores, he has said. A Wal-Mart spokesman did not respond to questions last month.

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