Target leaving Canada: 'Losing money every day'
After close to two years of meagre sales and no hope for turning a profit for at least another six years, Target Canada has decided to suspend all its operations in Canada.
The company announced Thursday it would cut its losses in Canada, file for creditor protection, and shutter all 133 Target Canada stores after 22 months of multi-million dollar losses.
"Simply put, we were losing money every day," Target Corporation CEO Brian Cornell said Thursday.
The announcement not only stunned many consumers, it dealt a huge blow to Target Canada's 17,600 employees.
The company says nearly all the workers who are not needed during the wind-down period will receive a minimum of 16 weeks of compensation, including wages and benefits.
The company plans to exit Canada in a “fair and orderly way,” seeking court approval to begin a liquidation process. All its stores will remain open during that liquidation.
Cornell told Target's corporate blog A Bullseye View that his team thoroughly reviewed the company's Canadian performance, and explored the option of closing only the lowest-performing stores, or exiting only certain provinces. But he said they could not find a realistic scenario that would bring Target Canada to profitability any earlier than 2021.
Cornell said the company and its board of directors determined that it was in the best interest of shareholders and the corporation to exit the Canadian market and focus on growth in their U.S. business.
The decision to pull out of Canada was a difficult one, he said, but believes it will be the right one.
"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," he said in the statement.
Minister of Employment and Social Development Jason Kenney says his office will be working to provide assistance to affected Target employees and get them back to work quickly.
That assistance includes ensuring that Target employees know about the federal benefits and services that are available, including training for in-demand jobs.
“Our thoughts are with the workers and their families during this difficult time," Kenney said in a statement.
Unifor, which represents more than 20,000 retail workers across the country, is urging Kenney to provide emergency access to employment insurance benefits for many Target workers who don’t qualify.
The union said many part-time and irregular retail workers don’t meet the current EI qualifying threshold, which can be as high as 910 hours over 52 weeks, depending on experience and where the employee lives.
"Workers have paid into EI, but when they need it most, they are shocked to find they don't qualify. Minister Kenney has authority to modify the EI rules for pilot projects and emergency situations, and I urge him to take immediate action for the Target workers,” Unifor’s national president, Jerry Dias, said in a statement.
Retailer struggled from Day 1
Target's announcement in 2011 that it had bought 220 Zellers locations from Hudson’s Bay Co., and was coming to Canada, was met with excitement by retail analysts. Many Canadian shoppers, too, looked forward to the retailer's unique product lines and great deals they had come to love at Target stores south of the border.
But the company's debut in Canada was marred by significant inventory problems that left many shelves bare, and shoppers frustrated. Canadians also expressed disappointment with the prices at Target Canada stores, which many insisted were markedly higher than in the U.S. outlets.
Retail analyst Doug Stephens says ahead of its debut, Target built up a lot of excitement among shoppers with a "brilliant" advertising campaign. But he believes the decision to roll out the new stores in one big launch may have been a fatal one.
"They opened over 100 stores all at once, which for any chain is an incredibly ambitious project -- probably way too ambitious. They probably should have started with much fewer stores," Stephens told CTV News Channel from Las Vegas.
Cornell acknowledged those mistakes in the blog post.
"We missed the mark from the beginning by taking on too much too fast," he said in a Q & A. "We have been very honest along the way that we had several operational challenges."
He added that they were "not as sharp on pricing" as they should have been, which led to "pricing perception issues."
Retail analyst Scott Mushkin, a managing director at Wolfe Research in New York told BNN that Target also failed to appreciate that a lot of Canadian shoppers were already familiar with Target's prices during cross-border shopping runs and knew how prices in the Canadian outlets compared.
Greg Taylor, a portfolio manager at Aurion Capital Management, says Target was also a victim of the surge in the Canadian dollar during 2013.
"When they came into Canada, the dollar was at parity, so it was easy to make the comparison (in prices) to go across (the border)," he told BNN.
When revenues continued to come in well below expectations over 2013, Target decided in May 2014 to terminate its president of Canadian operations, replacing him with a U.S. company veteran and vowing to address inventory issues to woo back customers.
Cornell said Thursday the company spent the last year working to "improve the fundamentals" and "build a deeper relationship with our guests" in Canada. But sales over the Christmas shopping season were simply too disappointing.
"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," Cornell said.
CTV's chief financial commentator Pattie Lovett Reid says many in the investment community have said for some time that this decision was inevitable. She notes Target lost an estimated $2.1 billion in the 22 months it was in Canada.
"We're talking about losing $3.1 million a day. You cannot run an operation that way," she told CTV News Channel.
Lovett Reid added that the retail landscape has changed. Many Canadians are shopping online more and Target Canada didn't offer an online shopping site.
"That is absolutely key. The younger generation, they're not going into the big malls as much and they're not going into the big-box stores," she said.