On the same day that she got the key to her new business in the Shoppers World Danforth mall, Fatama Akther learned that the anchor tenant, Target, had filed for creditor protection and would close all its stores in Canada.
“For a few hours my body was numb,” said Akther, adding that she hasn’t made a profit yet on the $60,000 investment she made converting a former book store into a spa and salon offering cosmetic procedures.
The foot traffic to and from Target that she hoped would help build her business never materialized. Instead, Genesis Spa & Salon is one of half a dozen stores in a dead-end wing of the mall, at Victoria Park and Danforth Aves.
“We need an anchor desperately,” said Helina Laitey, who works at World of Hair Design, next to Akther’s salon. “It’s really hard for merchants here.”
Genesis and its neighbours are among the Canadian businesses still struggling in the wake of Target’s unexpected failure.
A year after it filed for creditor protection on Jan. 15, 2015, many of the former 133 Target stores remain empty.
Landlords and creditors are still arguing in court over who should be paid first, and what they should be paid. RioCan Holdings Inc., which had the greatest number of Target leases that were guaranteed by the U.S. parent, Target Corp., was recently able to get a $132 million payment for 18 leases. Other landlords have yet to be paid.
Meanwhile, Akther has received no compensation (Shoppers World is a RioCan property), despite requests for a reduction in the $4,300 monthly rent she says she cannot pay selling pedicures for $25 plus taxes and eyebrow threading for $7.
Some smaller retail tenants rely on anchors such as Target to drive mall traffic, and will in some cases negotiate clauses into their leases triggering compensation if a major tenant leaves unexpectedly. Akther and her husband Mahiuddin Ahmed did not get a lawyer to review their lease with RioCan before they signed it.
“I’m not saying we’re tough guys, but retailers, they tend to exaggerate what is bad and de-emphasize what is good,” said RioCan founder and CEO Ed Sonshine, adding that a Lowe’s is moving into the space once occupied by Zellers, and then Target, at Shoppers World on Danforth.
RioCan doesn’t offer rent rebates as a matter of course, said Sonshine, pointing out that when times are good, retailers don’t offer to pay more rent, and shouldn’t expect rebates when times are tough.
“Its going to get better. Lowe’s should be opening by this spring,” said Sonshine. “They’re investing a ton of money into the place. When they open and the economy gets a little better, hopefully it will get a bit better for them.”
Akther operated her business at Main St. and Gerrard St. E. for 15 years. Her existing clientele followed her to the new location. But she hasn’t added enough new clients to make the move pay off.
Her husband and adult son, both employed, are helping finance her business; a situation that cannot continue for much longer. She is behind on her bills.
“For the last 10 months, I take not a single penny from here,” she said.
East York Town Centre
At the East York Town Centre in Thorncliffe Park, another former Target store sits empty, the round red cement balls still parked outside the wind-swept entrance.
Inside the mall, Mohammad Afzal, who operates a small store called Traffic selling shoes and accessories, said former anchor tenant Zellers did a better job of drawing shoppers than Target did.
But Target drew customers from a wider area. Now it’s shuttered.
“Nobody comes to this mall now. Now it is this neighbourhood only. Every day we see the same faces,” said Afzal.
His sales are down 50 per cent. “I have no idea what to do. It’s very difficult to survive, but we have to somehow. We hope for the best,” said Afzal.
The former Target location is being “re-merchandised” into multi-unit space, said John Levac, vice-president, asset management, Morguard Real Estate Investment Trust.
Erin Mills Town Centre
Nance MacDonald knew something was wrong when the Target at Erin Mills Town Centre in Mississauga opened to tepid consumer response.
“We were one of the last ones to open and people were starting to get the message — Target wasn’t Target,” said MacDonald, vice-president of Erin Mills Town Centre, referring to the stocking and pricing issues that dogged Canadian stores from the moment they opened in the spring of 2013 until the day they closed in 2014.
Erin Mills Town Centre recently sealed a deal with Walmart Canada to open a supercentre in the mall, offering groceries in addition to general merchandise.
The mall, located on Erin Mills Parkway north of Hwy 403, is emerging from a $100 million renovation that included taking down the dated clocktower and installing a massive orb, visible from miles away, in the centre of the mall and beneath it, a fountain.
At a time when malls keep getting bigger and more difficult to navigate, Erin Mills Town Centre is betting that it will continue to appeal to neighbourhood shoppers who prefer an easier-to-shop, small-scale mall.
Nevertheless, the market for retail real estate is softer than it was just a few years ago.
“I don’t know if it’s because of Target or the market. It’s not the first time it’s changed. Remember Eatons? You have to reinvent yourself. I guess it’s just the cycle,” said MacDonald.
The Target location at the Stockyards in the west end of Toronto was the chain’s first store built from the ground up to Target specifications. The others were remodeled Zellers stores.
The Stockyards site, another RioCan property, is currently under redevelopment as a Nations Fresh Foods supermarket — the Target logo is still visible through the second-story window, beside the brightly coloured Nations signs.
Demand for retail real estate in Canada isn’t what it was in 2011 when U.S. retailers were vying for space at the country’s top malls.
“It appears that U.S. retailers have forgotten Canada exists,” said Ed Sonshine, founder and CEO of RioCan, one of Canada’s largest retail real estate companies.
“Basically, Target’s complete flame-out and failure here really turned a lot of people in the U.S. off.”
Things are starting to warm up slowly, Sonshine added. The cheap Canadian dollar is making investment here more attractive to people with U.S. dollars to spend.
Of the 18 stores that were returned to RioCan by Target, five are without new leases in place and a couple will probably be ripped down, said Sonshine.
RioCan has also been able to rent out the space at the Colossus Centre in Vaughan that had been under consideration by Target.
The fate of other Target locations in the GTA
Lawrence Square: The former Target space at this address is being transformed into a Marshalls, Home Sense and Pet Smart opening in May. Landlord: RioCan Holdings Inc.
Sheridan Mall: Currently vacant. No new tenant has been announced. Landlord: Bentall Kennedy LP
Milton Mall: This former Target location here is slated for a Lowe’s, which announced last summer that it would open 14 new stores in Canada, including 12 at former Target locations. Landlord: Bentall Kennedy LP.
Aurora Shopping Centre: A Canadian Tire is slated to open in this mall. Landlord: Morguard REIT.
Burlington Mall: A Denninger’s Foods and three other unnamed anchors are scheduled to open in July. Landlord: RioCan Holdings Inc.
Eric Vieira and Paulo Salomao have become used to receiving offers from debt collectors in the U.S. who want to buy the debt Target owes them — about $30,000.
They are among the 1,710 claimants left hanging when Target abruptly pulled the plug on Canadian operations a year ago.
But the partners in the Toronto digital communications firm East End Project remain hopeful they will get more if they continue to pursue it themselves, with lawyer Lou Brzezinski of Blaney McMurtry leading the charge.
Brzezinski’s tenacious and innovative representation of Target creditors has brought him a measure of fame and acclaim in the legal world — he was recently nominated to be considered in the Canadian Lawyer 25 most influential lawyers in Canada, based on his work on the file.
Vieira and Salomao laid off two people after Target Canada — their first and biggest client — shuttered operations, but have been able to win new business since then, thanks in part to the contacts they made while working with the U.S. retailer.
“We think that as a company we’re in a much better place. The clients have started to come now, so 2016 is looking good for us,” said Vieira.
They’d still like to see the money one day, but they have moved forward.
“We don’t even talk about it anymore,” said Salomao.
In all, Target Canada’s creditors are owed $2.6 billion. Target Canada claims it owes other Target companies secured debts of $2.1-billion.
Target recently offered a deal that would have seen most creditors receive as much as 75 to 85 per cent of monies owed. But it was conditional upon landlords with guarantees from parent company Target Corp. in the U.S. giving up those guarantees.
Some landlords have 15-year leases that were guaranteed by Target Corp., worth as much as $26 million on a single property, according to court documents.
Naturally, the deal was opposed by landlords who would have been left with much less than they would get under their guarantees. The court agreed with the landlords, ruling against the deal.
It’s not unusual for a settlement in a case like this to last for a year, said Brzezinski, who represents 12 clients.
Creditors were pleased with the 75-85 per cent payout proposal and are now concerned that litigation could drag on or that Target Canada will declare bankruptcy instead of continuing under the more flexible Companies’ Creditors Arrangement Act (CCAA) process.
Creditors would receive considerably less than 75 cents on the dollar under a bankruptcy.
“What is most likely is that Target Corp. (the parent corporation in the U.S.) will come in and put some money on the table for landlords. I think we are heading to another plan, but you never know.”