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Food Less Essential in Canadian Targets: CFO

TORONTO — Target Corp. does not need grocery departments as a traffic driver in most of its planned Canadian locations, a senior Target executive said at an investor conference here last week.

Most of the Zellers locations that the company acquired in 2011, which began reopening as Targets last month, “are outstanding sites — they are in great malls,” said John J. Mulligan, executive vice president and chief financial officer. “They are high frequency sites to start with, so we benefit from that traffic naturally. And so while food is an important component, we perhaps don’t need the food as much to drive the frequency because we’re already in those high-frequency locations.”

That’s a benefit the company expects from its Canadian stores “perhaps more so than the whole chain in the U.S.,” he said in a presentation at the CIBC World Markets Retail and Consumer Conference.

“It is still very important that as part of a convenience trip, you know you can get food,” Mulligan explained. “In order to drive frequency and get that kind of midweek trip, food’s an important element.”

The stores will carry a limited grocery assortment, with prepackaged produce and meats and several freezer doors, but they will not carry the full P-fresh market assortment found in new and remodeled stores in the U.S.

Mulligan also said he believes the Canadian grocery competition is more formidable than what Target faces in the U.S.


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“When you look across the spectrum of the operators, they are very, very strong operators in Canada,” he said. “You look at the grocery operators — very, very strong, much stronger than that what we see in the U.S.”

He also noted, however, that retail square footage per capita was lower in Canada than it is in the U.S., suggesting that the chain might face less competition overall.

Mulligan also noted that Target would be competing against some familiar adversaries in U.S.-based rivals Wal-Mart Stores and Costco Wholesale Corp., both of which have a strong presence in Canada, as well as Canadian general merchandise retailer Canadian Tire.

Target is investing $10 million to $12 million per store to renovate the Zellers locations it is converting, plus an additional 50% or so in the case of expansions, Mulligan explained. The goal, he said, is to completely refurbish the stores to make them on a par with any of new stores the company has opened in the U.S.

“As we talk to Canadian consumers, the No. 1 thing we heard loud and clear, over and over and over again, is, ‘We want Target. We don’t want Target light. We don’t want Target Canada. We want the whole Target experience. We want the way store looks. We want the bright aisles, great service. We want the home, apparel,’” Mulligan said. “They wanted the whole package.”

Asked about reported out-of-stocks at the newly opened Target stores, Mulligan said the company had built up so much demand that opening-day crowds were bigger than the company had been expecting.

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“Our marketing team, if you give them two years, they are really good at generating buzz and excitement and anticipation, and they did an outstanding job,” Mulligan said. “We have seen overwhelming response, as Canadian consumers have come into the stores, and we’re thrilled by that because that’s a great problem to have, is more people than we expected.”

He noted that the stores were “blowing out of milk” in the first few days, a situation that a Target spokeswoman told SN the company was getting under control.

Mulligan reiterated Target’s goals of achieving $6 billion in annual sales from the Canadian stores by 2017. The company plans to open 124 this year, then five to 10 stores next year and another five or so in the following years, with a goal of 150 by 2017.

He said he expects “sales per store a little bit higher on average than what we see in the U.S.”

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