Target Corporation announced today it will close all 133 stores in Canada within the next four to five months, putting 17,600 employees out of work.
The move comes 22 months after Target launched its first international expansion, with great confidence and hope, in the spring of 2013.
While initial public reaction was favourable, Canadians quickly became disenchanted when Target couldn’t keep shelves stocked. Shoppers complained the price points were too high and that many of their favourite Target products had not been imported into Canada.
Despite a massive effort by Target to repair the problem, inventory remained thin over the holiday shopping season, and sales failed to meet expectations.
“We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance,” said Brian Cornell, Target Corporation Chairman and CEO, in a statement. “There is no doubt that the next several weeks will be difficult, but we will make every effort to handle our exit in an appropriate and orderly way.”
Cornell said that the decision was made after a thorough review of Canadian store performance.
“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. 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.”
Target made numerous mistakes when it entered Canada, according to retail analysts.
One of their biggest mistakes was location, said Joe Jackman, chief executive officer of the customer experience consultancy Jackman Reinvents.
Target locations in Canada
The store leases Target bought from HBC for $1.825-billion in 2011 were not in ideal locations, and the Target brand was not strong enough in Canada to draw shoppers to the locations, especially when customers were being met with bare store shelves.
Jackman said another error was that they opened 124 stores at once in 2013, instead of opening more slowly, testing and learning as they went along.
“When they said in 2011 they were coming to Canada, what we witnessed in the ensuing year was a level of competitive readiness that we have never seen in Canada before,” said Jackman, pointing out that Walmart Canada, Loblaw and Canadian Tire amped up their games.
“Target when they arrived in Canada hit a wall of competitive intensity and strength they had never, ever expected.”
Sandy Silva, retail analyst for the NPD Group, said Canadian shoppers have unique needs and wants.
“Retailers from other countries looking to enter the Canadian market will not be successful with a cookie cutter approach, they need to have a full understanding of our retail dynamics in order to be successful.”
Brad Duguid, Ontario’s Minister of Economic Development, Employment, and Infrastructure, released a statement in response to the store closures.
“I understand that Target Canada intends to keep their retail stores open during the transition process, and provide their employees with compensation for this abrupt news. Our government will work with Target Canada and all levels of government to provide affected employees with transition training, and monitor the court proceedings closely to see what decisions are made, and the direct impact they have on Ontarians.
Job creation and economic growth remain a priority of this government, and we will continue working to create an inviting business climate to attract investment and create new jobs.”
Target says its cash costs to shut down its Canadian operations will be $500 million (U.S.) to $600 million (U.S.). The stores will remain open during a court-supervised liquidation period.
It also plans to sell its real estate.
The company said “nearly all Target Canada-based employees receive a minimum of 16 weeks of compensation, including wages and benefits coverage for employees who are not required for the full wind-down period.”
The company had hoped to see signs of a turnaround in its sales over the holiday season, but that did not materialize.
A snapshot of 76 Walmart and Target stores across Canada during a prime shopping weekend in mid-December, retail information gathered by Field Agent Canada showed that 30 out of 38 Walmart stores were busy or very busy. Among 38 Target stores, 15 locations were busy or very busy.
As recently as last March, Target had planned to expand its presence in Toronto. It announced it would open its first downtown Toronto store in a massive new residential and commercial project under construction south of the Gardiner.