Will Target’s rapid expansion into Canada over the past 20 months be followed by a speedy retreat back over the border? Those who watch the retailer closely are debating that now. And it appears so is the company.
Target’s most senior leaders said this week every single store across its struggling Canadian chain must make a “step-change” in performance.
Dictionaries define step-change as a significant improvement. For Target Canada, that likely means stocking up empty store shelves instead of letting them sit bare; a better assortment of items customers will be looking for; deals on key categories like baby products, home décor and – not least – fashionable apparel.
That’s the stuff Target’s highly successful U.S. stores are known for, and Canadians who cross-border shop – which number many – have come to expect down there.
Also on deck: A continued, subtle drift lower in prices as Target tries to dissipate the perception it charges more at stores north of the border.
All the while, Target must keep up the battle against Walmart’s 390 or so Canadian stores and well-run domestic rivals like Canadian Tire.
For a chain that has rapidly inflated to 133 stores and is burning through cash in the process, the pressure is accelerating. It’s perhaps mostly intensely coming from inside Target and at the very top.
Brian Cornell, Target’s new leader, said Wednesday he is evaluating now whether the money-losing Canadian chain is worth keeping, and will provide an updated view “early next year.”
“We know that just to succeed in Canada, we will need a major step-change in performance,” he said on a conference call.
Can Target pull it off? Experts aren’t sure.
Despite comments from Target’s senior team stressing a sense of urgency in Canada –where Cornell has ventured on several occasions since taking over in mid-August— some suggest they haven’t seen much improvement.
“There is minimal empirical evidence of any recent improvement in the store or distribution operations of the company,” CIBC retail analyst Perry Caicco said in a research note last month. Contacted Thursday, a day after Target Canada reported rebounding sales, the analyst’s opinion hadn’t improved much.
“Nothing has changed,” Caicco said.
Target Canada is faced with “serious decisions,” he concluded in his note, to either double down on the Canadian chain in hopes of getting things right (i.e., achieving profitability eventually), or to seek an exit of some kind.
“The report represents one analyst’s opinion,” a Target spokesman told Global News at the time of the report. “Target’s focus is on driving improvements to the business.”
Some of those efforts appear to be trickling through now. Sales at stores opened more than a year, a key retail metric that shows the ongoing pace of purchases, are climbing. That suggests some Canadian shoppers are now making return trips to Target.
BMO Capital Markets meanwhile believes the company’s Canadian woes can be fixed over the next year. “Many of the challenges at Target over the past 24 months have been self-inflicted, straightforward and correctable over the next 12 months,” analyst Wayne Hood said.
But there are still questions about execution. And Cornell is watching very closely for that step-change.
“Management must see the potential for a step change to remain in the market,” BMO’s Hood said. “And the [holidays] will be important to making that determination.”