Target to shutter Canada business

Minneapolis – Target is calling it quits in Canada. The retailer said is closing down its money-losing Target Canada business. The chain previously indicated it would review its Canadian subsidiary, which launched with great fanfare in March 2013, after the 2014 holiday season.



“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 Corp., a position he took over in July 2014. "With the full support of Target Corporation’s board of directors, we have determined that it is in the best interest of our business and our shareholders to exit the Canadian market and focus on driving growth and building further momentum in our U.S. business."



Target's Canadian operations have been troubled from the start. The retailer had a problem keeping its stores stocked and was challenged by a perception that its prices were higher in Canada than in the chain's U.S. stores. Perhaps one of its biggest challenges was competing with Wal-Mart, which is well established north of the border where it has been operating for some 20 years. While Target initially hoped to begin turning a profit in Canada by the end of 2013, instead it has racked up about $1.6 billion in losses to date.



"The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests,” Cornell said. “We hoped that these efforts in Canada would lead a successful holiday season, but we did not see the required step-change in our holiday performance."



Target has filed for creditor protection in Canadian bankruptcy court and will close all 133 stores in Canada, liquidating merchandise and most likely terminating Target Canada’s 17,600 employees. Employees who lose their jobs will receive 16 weeks of severance pay as required by Canadian law. Stores will remain open during liquidation.



Target Canada is seeking the appointment of Alvarez & Marsal Canada as monitor to oversee the liquidation and wind-down process for Target Canada and its subsidiaries. Subject to court approval, Target has committed to provide a $175 million debtor-in-possession credit facility to finance operations during the bankruptcy proceedings. Target Canada is also seeking court approval to engage Lazard to advise in connection with the sale of its real estate assets.



In addition, Target will voluntarily place $59 million in a trust for employees. Target expects to incur approximately $5.4 billion in fourth-quarter losses from discontinued operations in Canada. The company reported an operating loss of $211 million in its Canadian division during the third quarter of fiscal 2014.



In 2011, Target acquired some 220 Zellers stores, with a plan of converting them into Target stores. It reopened the remodeled stores under the Target banner in 124 of those locations in 2013.

Further reading: Q&A with Brian Cornell on Target’s Exit from Canada