Toronto | Reuters — Target Corp. will abandon its ill-fated expansion into Canada less than two years after launch, the U.S. discount retailer said on Thursday, in a surprise retreat that will put more than 17,000 employees out of work and cost it billions.
Shares of Target, which was granted creditor protection for its money-losing Canadian subsidiary, rose three per cent after the news.
The company is shutting all of its 133 Canadian stores and said it expects to report about $5.4 billion in pretax losses for its fourth quarter, which finishes at the end of January. Losses are mostly due to the writedown of the Canadian investment, along with exit costs and operating losses.
Minneapolis-based Target, the No. 2 discount chain in the U.S., has struggled in Canada since its 2013 launch. It faced huge supply chain problems that left stores poorly stocked. This disappointed shoppers who had eagerly anticipated the retailer’s arrival in a market where the discount space had long been dominated by Wal-Mart Stores Inc.
Store checks by Reuters in Vancouver, Toronto and Ottawa before and after Christmas showed improvements in product selection, but holiday traffic still appeared moderate.
The company said in November it would review the future of the Canadian business after the holiday season.
“The analysis was rigorous. Unfortunately, we were unable to find a realistic scenario that got Target Canada to profitability until at least 2021,” CEO Brian Cornell said on Target’s online magazine.
“The losses were just too great.”
Some analysts had called for a complete exit from Canada so Target could focus on U.S. operations. But the move was still a surprise as the most likely scenario was that Target would try to fix the unit by closing only the poorest-performing stores, said Craig Johnson, head of Customer Growth Partners.
“Anything you could have gotten wrong in the playbook, they got wrong,” said Antony Karabus, CEO of retail consultant firm, HRC Advisory.
He said Cornell displayed strong leadership and that trying to fix a broken business would have taken years, distracting Target from beefing up its online business and recapturing its “cheap chic” magic.
“Entirely their fault”
The failed international expansion bodes poorly for Target’s long-term growth prospects, said Jim Danahy, director of the Centre for Retail Leadership at York University’s Schulich School of Business in Toronto.
“There isn’t a bigger implosion and it needs to be really understood (that) it’s entirely their fault,” Danahy said.
Target has acknowledged it took on too much too fast in Canada and the disastrous launch spurred the exit of top executives last year.
Target does much of its own distribution in the U.S., but hired Eleven Points Logistics, a subsidiary of Pittsburgh-based Genco, to run its Canadian warehouses.
The company had also reached a long-term wholesale agreement with Empire Co. Ltd.’s Sobeys to supply it with groceries in Canada. Empire and Genco could not immediately be reached for comment.
Former Target and Eleven Points employees had told Reuters about a myriad of problems at the warehouses, stores, and headquarters, especially in the first year. They said a combination of new technology and systems, inexperienced hires and poor training all contributed to supply chain woes.
Barcodes on many items did not match what was in the computer system, they said, causing massive warehouse logjams, while store backrooms were stacked from “floor to rafters”, making it difficult to locate products to put on shelves.
Target said stores would remain open during liquidation, and that with court approval it would pay all of its Canadian employees a minimum of 16 weeks of compensation.
— Solarina Ho is a Reuters correspondent covering the retail sector from Toronto. Additional reporting for Reuters by Susan Taylor, Euan Rocha, Allison Martell, Nathan Layne in Chicago, Julie Gordon in Vancouver and Leah Schnurr in Ottawa.