By Paul Ziobro And Chelsey Dulaney
Target Corp. has decided to shut down its money-losing foray
into Canada, concluding that the efforts needed to fix those
operations would distract executives from the bigger task of
turning around the discounter's sluggish U.S. business.
The reversal ends a big, expensive attempt to expand beyond the
U.S. Target spent the equivalent of more than $4 billion setting up
its Canadian operations, which now encompass 133 stores and 17,600
employees. But a series of missteps from poor store locations to
bad pricing decisions produced $2.5 billion in losses, and Target
determined that the red ink couldn't be stopped for another six
years. On Thursday, Target said the operations would be
liquidated.
Target's move to cut its losses signals that new Chief Executive
Brian Cornell is prepared to act decisively to get the retailer
back on track. Since taking the top job in August, the former
PepsiCo executive has crafted plans to refocus on a handful of core
departments like baby products and fashion in the U.S., shifting
away from the grocery-heavy approach of his predecessor, who left
following an executive revolt.
A team of Target executives and outside advisers spent the two
months before Christmas visiting all 133 Target stores in Canada to
evaluate shopping trends, inventory levels and other indicators of
performance. Mr. Cornell made several visits to tour stores as
well.
The company considered a number of options. Could they close
dozens of stores? Could they run the business with a leaner
headquarters? But even under best-case scenarios and with
performance having improved in recent months, Target couldn't see a
way of turning a profit in Canada until 2021.
Mr. Cornell concluded it was a no-win situation, a person
familiar with the matter said, and delivered the verdict to
Target's board during a regularly scheduled meeting in Minneapolis
on Wednesday. "The timetable of turning this thing around would've
been distracting," the person said. "He gave it every chance he
could to see if it has a light at the end of the tunnel. Clearly,
it doesn't."
On Thursday, Target said its sales over the holiday season came
in better than expected. It now expects to report a 3% climb in
U.S. sales excluding newly opened or closed stores for the months
of November, December and January, better than the 2% gain it had
expected.
The exit from Canada will cost the company as much as $600
million. Target expects to book a $5.4 billion pretax loss on
discontinued operations in its fourth quarter ending this month.
Target's shares were up 2.6% Thursday morning amid a broader market
decline.
Target began opening stores in Canada in 2013--its first
international expansion--and almost immediately faced problems.
Many of the more than 120 Zellers stores that Target bought from
Canadian department-store chain Hudson's Bay Co. in 2011 were in
rundown shopping centers that were hard to access. The locations
were smaller than Target's typical U.S. formats and took more money
than expected to expand and convert to its trademark red-and-white
layout.
Customers who had been so enamored of Target that they would
drive across the border to shop in U.S. stores were disappointed by
the prices they found. Inventory gaps were a problem as well.
The discount chain told investors that its Canadian business
would be profitable by the end of 2013, but the division quickly
began to lose money.
On Thursday, Target's application to begin the liquidation
process was approved by an Ontario court. It is asking permission
to set aside $59 million to pay most employees 16 weeks of
severance pay.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Chelsey Dulaney
at Chelsey.Dulaney@wsj.com
Access Investor Kit for Target Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US87612E1064
Subscribe to WSJ: http://online.wsj.com?mod=djnwires