It’s unlikely that one retailer will scoop up all of Target Corporation’s 133 locations now that the U.S. retailer has decided to leave Canada, experts say.
Instead, look for some established names in Canadian retail, and perhaps some new players from the U.S. or even the U.K., to eventually move in.
“On the first blush it’s terrible, but with every change over, every turn over is opportunity,” said Don Gregor, chief financial officer at Aurora Realty Consultants.
“This will be yet another opportunity for new construction, store construction, architecture and supply. It will probably be $1 billion worth of construction.”
Target, which set up shop in former Zellers stores in March 2013, filed for bankruptcy protection for its Canadian unit on Thursday. It plans to shut its stores in the next four to five months, leaving 17,600 people out of work.
Retail rivals Walmart and Canadian Tire were two names that came up repeatedly when The Toronto Star asked retail experts who may be in the running to take over Target locations.
The retailers released statements on Thursday commenting on Target’s departure, but are mum on their future plans.
Target has 26 leases with RioCan Real Estate Investment Trust, and contributes to nearly 2 per cent of the company’s annualized rental revenue, RioCan said in a statement issued on Thursday.
“RioCan will work closely with the management team from Target to facilitate an orderly transition at the properties where Target is closing,” Edward Sonshine, chief executive officer of RioCan, said in a statement. “Our locations are in strong retail nodes, and while this process will unfold over time, we expect that the interruption to revenue will be minimal, if at all.”
It’s highly unlikely that one store will take up all the locations, which range in size from 130,000 to 150,000 square feet, and are located across the country in big cities such as Toronto as well as small communities such as Orillia and New Liskeard, Ont.
About one-third of locations are attached to shopping malls.
“When you look at the fact that no one retailer will take it all, it’s the best proof that was Target’s first mistake — taking them all,” said retail consultant Mark Satov.
Target’s decision to open so many stores in such a short time meant that it didn’t have time to get its business operations in place correctly,” said Tandy Thomas, assistant professor at the Queen’s School of Business.
“If you think about the problems, prices not being competitive, the selection not being there, shelves being bare, a lot of these problems could have been managed by a slower move into the Canadian market where they would take the time to build up good supplier relationship, get a broad selection and figure out what Canadians are looking for, and learn step by step,” Thomas said.
Lowes, the U.S. home improvement chain that failed in its attempt to buy Quebec-based rival Rona in 2012, may use the opportunity to take another run at Canada, Gregor said.
U.S. retailer Dick’s Sporting Goods Inc. has long said to be considering a move north. And Quebec-based outdoor and sporting goods retailer Sail, which opened a location in Cambridge, Ont., in November, may also use the opportunity to expand in B.C. or Alberta, Gregor added.
Also from Quebec, fashion retailer Simons, which is opening its first store in Ontario at Square One in Mississauga in a former Sears store next year, may add some locations.
U.K.-based fashion retailer Primark, part of the George Weston Ltd. empire, is another candidate, experts say.
On the food side, possible tenants include organic grocers Whole Foods or Nature’s Emporium, as well as Loblaws — if the store is not too close to an existing location.
We may also see grocers partner with fitness chains to share locations, which is a growing trend, Gregor said.
“Grocery store chains now realize that fitness chains are excellent co-tenants,” Gregor said. “They’re people who come every day or every other day. They’re healthy and organic and they’ll buy the higher margin stuff.”
The Canadian retail market doesn’t suffer from the same problem that the U.S. does — too many stores chasing too few customers, said Brian Yarbrough, senior analyst with Edward Jones.
“There will be pressure on the Canadian market for the next few months because of the liquidation sales but once you get past that, it’s going to make the market healthier,” Yarbrough said.
Target’s failure in Canada “has nothing to do with the Canadian retail market,” he added. “This has to do with Target opening way too many stores and biting off way more than they could chew.”