Target’s struggle to establish itself in Canada could lead to a decision to sell the business soon, according to a new report from CIBC Capital Markets.
Target, according to CIBC analyst Perry Caicco, “has been a disaster in Canada, producing sales at about half of our initial projections and running deep operating losses.”
In the report, Caicco said the situation presents Target with a difficult choice of continuing to invest to improve operations, or to sell to another operator, but noted either choice would be costly.
Target, the Minneapolis-based retailer, entered Canada in 2013 following the acquisition and conversion of former Zellers sites and today operates 130 stores there. Company officials have acknowledged the chain underperformed initial expectations, and in August announced a slate of initiatives aimed to improve stock conditions, pricing and merchandising at stores.
According to Caicco, few examples of such improvements are evident in stores now. “The shelves and displays do not appear to be stocked much better, the pricing and value strategy make little sense to us, and there are few exciting new programs in most parts of the store,” the report said. According to CIBC estimates, Target has already invested some $6.3 billion (Canadian) in Canada and would need to show dramatic improvements in sales and margins to break even on an EBITDA basis.
Caicco speculated that Target would likely keep operating in Canada through 2015 but could seek a sale — most likely to another retailer, mentioning Loblaw and Wal-Mart Stores as possibilities.
A Target spokesman reached by SN emphasized the report was one analyst's opinion. In a statement the company said: "Target's focus is on driving improvements to the business, and as we have shared previously, we look forward to continuing to assess our progress, the work ahead, and the opportunity in the Canadian market. With the fourth quarter just around the corner, our teams are focused on ensuring we offer guests an exceptional shopping experience this holiday season."
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