It's official, Target is expanding north of the border, and has agreed to pay C$1.825 billion to purchase the leases of up to 220 stores currently operated by discount store chain Zellers Inc., a subsidiary of the Hudson's Bay Co. Target expects to begin converting the stores, with the first slated to open in 2013.
Zellers stores will continue to lease back the locations from Target as it embarks on its conversion schedule. Target expects to open 100 to 150 Target stores throughout Canada through 2014. It is unclear what will become of the remaining Zellers locations as Hudson's Bay said it will focus on its other divisions including Bay, Home Outfitters and Fields. There are 279 Zellers stores in Canada and selling the leases to 220 of those isn't promising for the chain's future.That Target was considering a Canadian expansion has been rumored for quite a while, and it's hard to believe this is Target's first International venture. After all, it's been in business as long as Walmart, which operates in 15 different countries and entered Canada in 1994.
But Target has always been much more cautious than its competition, the tortoise to Walmart's hare in the parable about who wins the race. Slow and steady have served Target well, and it will be interesting to see how the company handles such rapid expansion. The company typically opens fewer than 100 stores in any given year, nor has it ever acquired existing real estate, choosing instead to acquire property and design stores to match its national footprint.
Many had expected Target's first International expansion to be into Mexico, since the retailer already has Spanish language marketing and packaging experience. Operating in Canada requires retailers to take a dual-language approach in English and French. Rumors to the contrary (Target is not a French-owned company; it's headquartered in Minneapolis, Minn. and is an offshoot of the former Dayton's Department Store chain), launching a new business in a new country that speaks something other than English is a challenge.
There are a lot of hurdles here for Target. Some 200 stores at once is a big acquisition to digest and in an effort to help offset the acquisition costs, Target is looking to sell its portfolio of credit card receivables worth $6.7 billion as of Oct. 30.
Heading up the retailer's marketing initiatives is Michael Francis, the man who oversaw the chain's successful branding initiatives in the U.S., including the now iconic red bull's eye, commercials and the "Expect More, Pay Less" slogan. Clearly, the company has confidence he can establish Target in the minds of Canadian consumers in much the same way he has in the U.S.
Banking Services 101
Understand your bank's services, and how to get the most from themView Course »