The 20 million square-foot hole left by Target when it begins to turn out the lights at 133 locations across the country is going to be filled by someone, the question is who.
In a few weeks’ time Target will begin a sales process that will see one or more players purchase the leases on its locations.
Experts suggest Loblaw, Hudson’s Bay and others, including even some other U.S. retailers, could take up the slack left by the departing discounter. But many see Walmart as the potential big winner from Target’s stunning retreat.
With about 400 Canadian stores at present, the world’s biggest retailer could grow its footprint by more than 130 locations if it snaps up old Target sites. Even without picking up any stores, Walmart will certainly benefit from higher sales.
“The primary beneficiary is Walmart,” CIBC retail stock analysts said following Target’s abrupt announcement.
But CIBC and others are betting Walmart emerges as a buyer of multiple Target locations, if not the entire network. CIBC sees a showdown looming between Walmart and Loblaw.
“For Walmart, it’s an opportunity to acquire the best of the locations … and the transition would be quick and easy,” CIBC analyst Perry Caicco said Thursday. “For Loblaw, the perspective is more defensive – seeing that space go to Walmart would be troubling.”
Still, Target’s chain of 133 stores could be broken up and sold off to multiple parties, BMO Capital Markets analysts said. Target’s stores aren’t ideal fits for either Loblaw or Walmart.
“We believe Walmart could ‘cherry pick’ some locations. However, most of the Target stores are smaller than Walmart’s typical footprint and would likely be too small for [Loblaw] Supercentres with a full grocery offering,” BMO’s Peter Sklar said.
What about Hudson’s Bay – the very company that sold leases from its struggling Zellers chain to Target back in 2011?
“They have their hands full with Saks,” CIBC analysts said. Moreover, they likely aren’t interested in another foray into discount. “They would – and should – have no interest in buying an asset that competes day-to-day with Walmart.”
Having Walmart acquire Target’s network could bring some consumer benefits, experts say. More buying power to squeeze lower costs out of suppliers is one way Walmart could grind retail prices lower. Another is reducing operating costs by cutting the significant duplicate functions, like supply chain and other backend and administrative activity.
“The ability to lower prices would be significant,” CIBC’s Caicco said.
“Because of the synergies, nobody would have more to gain than Walmart and they could outbid everybody easily,” the analyst said, who predicted Target might leave in a research report in late October.
“Our bet is that if Target decides that staying is too expensive, this [a sale to Walmart] is how they would exit,” the CIBC analyst said at the time.
WATCH: After less than two years in Canada, American retail giant Target is throwing in the towel.
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