Target to discontinue Canadian operations

Despite a big initial marketing push, the retailer will shutter its 133 locations amid empty shelves and heavy competition.

Target Canada will close all of its 133 stores in Canada as it applies for creditor protection, the retailer announced today.

“After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” said Brian Cornell, chairman and CEO of Target Corporation.

Target Canada was formed in 2011 to oversee the U.S. retailer’s operations in Canada, purchasing the leases of 189 Zellers locations. The first Target locations in Canada opened in 2013 with great fanfare.

The company has filed for creditor protection under the Companies’ Creditors Arrangement Act with the Ontario Superior Court. No timeline for store closings has been set, but the filing includes a request to appoint the firm Alvarez & Marsal Canada to monitor the proceedings and oversee the liquidation, with financial and asset management firm Lazard overseeing the sale of Target’s real estate assets. The company also says its locations will remain open during the liquidation process.

Target currently employs approximately 17,600 people. As part of the protection filing, the company is seeking approval to pay $70 million into a trust that will cover 16 weeks of wages for employees that will not be required as part of the wind-down process.

The statement from the company says Target expects the costs of discontinuing its Canadian operations to be between $500 and $600 million, to occur sometime in the 2015 fiscal year. Driven primarily by the write-down of the company’s investment into Canadian operations as well as pre-existing Canadian losses, the company also expects to report $5.4 billion (USD) in total pre-tax losses related to discontinued operations in the fourth quarter of 2015, with an additional $275 million in the 2015 fiscal year.

Marketing consultant Tony Chapman was not surprised by the announcement, pointing to the poorly-stocked shelves and higher than expected prices that disappointed Canadian shoppers, as well as online retailers finding their foothold and increasing the competition in the fashion category. While all those have been vocal concerns of shareholders, he adds the struggling Canadian dollar, making it more expensive to operate in Canada, was the final nail in the coffin.

“Shareholders and investors have been pushing for this decision for a while,” he says. “I think they, at one time, had hopes of turning this thing around, as evidenced by their new flagship store, but the reality is the plummeting Canadian dollar was just another machete wound to an already hemorrhaging brand.”

Since opening its first locations in 2013, Target’s quarterly losses have been above $169 million, topping out at $329 million in the fourth quarter of 2013, and in May 2014, the total losses in Canada broke the $1 billion mark.

In May, Tony Fisher was replaced by Mark Schindele, then the SVP of merchandising operations in the U.S., as president of Target Canada, while Cornell came on in his role in July to replace Gregg Stenhafel, who had departed in May. In November, VP of marketing in Canada Livia Zufferli departed the company for Rogers.

In Canada, Target worked with creative agency kbs+, media agency Carat and public relations agency Veritas.

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