Target is giving up on its money-losing foray into Canada after just two years, closing 133 stores and cutting loose more than 17,000 employees.
Target said it didn't see how it could stop losing money before at least 2021 on its first international expansion. The closing links Target with a series of other retailers who have learned the hard way that the northern border is tough to cross.
During a call with investors Thursday, CEO Brian Cornell described the decision as “very tough.”
What went wrong? Cracking the Canadian retail market, about one-tenth the size of the U.S. and right next door, looks simple. Target's difficulties show it's not.
There are costly regulations. In addition, most Canadians live near the U.S. border, compare prices religiously and are willing to shop in the U.S. to save money.
There's also increasing competition. Canadian standbys like Dollarama and Canadian Tire are formidable rivals. And Wal-Mart Stores Inc., already the biggest retailer in Canada, cut prices to fend off Target.
Other retailers have had similar problems in Canada. Big Lots Inc. and Best Buy Co. have closed stores there and Wal-Mart has seen its sales in Canada weaken. Sears Holding Corp. is selling most of its stake in its Canadian unit.
And just on Thursday, Sony Corp. said it is closing all 14 of its stores in Canada.
The well-publicized woes of Target have made Nordstrom take a conservative approach to Canadian expansion. The upscale chain opened its first store last September and plans to have a total of six by 2016.
Only a few years ago, exporting Target's “cheap chic” seemed like a no-brainer because droves of Canadians crossed the border to shop at its U.S. stores.
But problems cropped up almost immediately when it opened more than 100 stores in the first year of its Canadian expansion. Shoppers complained of shortages of basic goods and complained that prices were too high. They also didn't find the brands that they'd seen and liked in U.S. stores. As a result, Target racked up losses as high as a billion dollars a year.
“We missed the mark from the beginning by taking on too much too fast,” Cornell said on the Target blog.
A weak holiday season was the last straw. To fix the Canadian business, Target told investors Thursday, it would have to invest billions more.
“Target underestimated that the Canadian consumer is a highly sophisticated consumer who cross-border shops,” said Antony Karabus, president of Hilco Retail Consulting in Toronto. “It also underestimated the fiercely competitive landscape.”
Canadian shoppers were more blunt in their assessment.
“Shame on them for opening here with exorbitant prices compared to the U.S.,” said Lauren Tinto, 35, of Toronto. “They think we're idiots or something.”
Jeff Barr, a 63-year-old teacher from Thornhill, Ontario, said he wasn't impressed on his visit to a Canadian Target after often shopping at Targets in the U.S.
“The shelves were empty,” he said.
Target said Thursday that it expects about $5.4 billion in fourth-quarter losses from discontinued operations in Canada.
Target expects cash costs for the exit to be between $500 million and $600 million. The retailer said it has enough money to fund the costs.
The company said it received court approval to voluntarily make about $59 million in cash contributions into an employee trust to pay for at least 16 weeks of compensation for almost all the Canadian workers.
Target Canada stores will stay open during liquidation.
Jason Kenney, Canada's minister of employment, said the government would assist Target workers with information sessions to ensure they know what services are available to them and what types of jobs are in demand.
Cornell said that the company can now focus on improving its U.S. business and is doubling down on areas like fashion and home furnishings. It's also expanding smaller format stores and bolstering its online business. Target executives offer an update to investors in March.
Cornell's predecessor, Gregg Steinhafel, was pushed out last May after a string of problems, from the theft of millions of customers' data to sales woes in the U.S., as well as the failure in Canada.
The company's stock gained $1.45, or 2 percent, to $75.78 in midday trading Thursday
But employees were feeling the pain at a Target store just east of downtown Toronto.
“It's so sad for us,” said Adelle Layon, a Target worker at the Canadian store. “We've been here since the start. We built these shelves. All of us here right now, helped to build it. “
Layon she and her fellow workers heard the news from managers and after they went into the lunch room, they saw the news on TV.
“No one is happy about it.”