Been there, done that: Target follows Big Lots blueprint in Canada

Talk about ripping off the Band-Aid. Target Chairman and CEO Brian Cornell moved swiftly and decisively in deciding to exit Canada, however his actions aren’t without precedent.

Big Lots took similar action after it entered Canada and last fall, a month after Cornell took the helm, the prospects of Target’s exist from the market were explored in the third quarter edition of Retailing Today’s Target Supplier News publication. This is that story:

Target’s new chairman and CEO Brian Cornell is clearly focused on improving the company’s operations in Canada. That much was evident by the fact that one of his first official duties upon joining the company last month involved a visit to Target’s Canadian headquarters and a photo op in stores with senior leadership.

Target’s long term commitment to Canada could be a different story if the company isn’t able to improve merchandising and operations to drive the type of financial performance envisioned by Cornell’s predecessor, former Target chairman, president and CEO Gregg Steinhafel. Target went into Canada thinking operations there could contribute annual sales of $6 billion and 80 cents in earnings per share by 2017. If a clear path to improve profitability doesn’t emerge in 2015, Cornell isn’t emotionally attached to the decision to enter the market which oftentimes makes the decision to exit easier.

Just ask former Big Lot’s CEO Steve Fishman. He was at the helm of the leading closeout retailer in July 2011 when the decision was made to acquire 89 Liquidation World stores in Canada. Big Lot’s already had a sizable footprint in the U.S. with 1,405 locations, but entry into Canada was seen as an opportunity to accelerate and drive years of sustainable growth.

The rationale behind the market entry was similar to Target’s and so were the early results. Big Lots initially experienced slightly better than expected sales and lost less money than planned. Throughout 2012 the company reported modest sales growth but it was never able to turn the corner on profits. In December of 2012, Fishman left the company and in April 2013 David Campisi was named CEO.

Big Lots continued to struggle in Canada, not so much on the sales front, but losses continued to mount. By December of 2013, the company decided to pull the plug on Canada, just 18 months after it entered the market. As the company continues to put losses related to the decision behind it, Big Lots has become more aggressive in returning cash to shareholders with its first ever dividend and is focused on increasing the productivity of its U.S. stores.

Target clearly has more at stake in Canada than Big Lots. It spent billions to enter the market when it acquired 220 Zellers leases in January 2011 and has continued to make considerable investments of capital and human talent. Most recently, Target Canada named Mark Schindele president and restructured the senior leadership team to focus on new initiatives related to merchandising, pricing and supply chain. If those efforts don’t pan out by next year, Cornell and the Target board may find themselves following the Big Lots lead, essentially cutting the company’s losses if the prognosis for profitable growth within an acceptable time frame doesn’t emerge. (Target said it was unable to find a realistic scenario that would get Canada to profitability until at least 2021).

Such a retrenchment would be a blow to Target’s cache, but other major retailers have suffered a similar fate. Most notably, Walmart exited Germany more than a decade ago after making multiple acquisitions and incurring losses it was able to conceal within its overall international division. More recently, Tesco was forced to abort its efforts to establish a foothold in the U.S. by opening food stores under the Fresh & Easy banner.