Canadian mall landlords are attempting to quickly fill the sizable void left by Target after the U.S. retailer uprooted its Canadian operations this spring and swiftly closed all 133 of it stores.
RioCan, one of the country’s largest commercial property landlords, said Tuesday it has entered into talks with an undisclosed number of retailers to lease space in 15 former Target Canada locations that have been returned to the real estate investment company.
The statement was made the same day the bulk of the network — namely leases on the best properties — went to auction as part of the retailer’s court-supervised wind up. Target occupied a total of 26 locations owned by RioCan.
Open question
“We think it’s going to be robust and we’re looking forward to finalizing and entering into transactions that will let us maximize the value of our portfolio,” Tracy Sandler, a Canadian lawyer representing the U.S. discount chain in the sale of the leases, said last week.
While some locations will have little difficulty finding new tenants, whether RioCan and other Canadian landlords can find new takers for all 133 locations is an open question, experts say.
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Target Canada returned 55 store leases back to landlords last week, including the 15 RioCan is in talks with retailers about now, after no bidders expressed serious interest in taking them off Target’s hands.
Very selective
The lack of interest in the leases underscores the tough environment many retailers are facing as consumers split more of their shopping dollars between bricks-and-mortar stores and online outlets. The large-format locations Target operates also limit the number of potential buyers.
Canadian e-commerce sales from sites like Amazon, Costco and Walmart are expected to more than double by 2018, from $21.6 billion in 2013 to $44 billion, according to eMarketer says. A report from BMO Capital Markets this week cited the three merchandisers as well as others such as eBay, Sears and Best Buy, as the top online e-commerce players in Canada.
The shift in buying habits now occuring could mean some suddenly available locations could have trouble finding takers for long-term leases.
“Online retailers such as Amazon continue to grow their sales, and many retailers are reducing their real estate requirements,” Mark Rothschild, an analysts at financial services firm Canaccord Genuity, said in a recent research note.
Big national merchants, like Walmart, Loblaw and Canadian Tire are all said to be interested in at least some former Target stores. All potential bidders though will be very selective, experts say.
Others, such as foriegn retailers eyeing a potential expansion into Canada, may also be gun-shy given Target’s shockingly difficult foray across the border.
Rent payment
Target Canada isn’t paying rent on the properties following its creditor-protection filing in January. But RioCan says it will seek payments from Target for lost rental revenue under the terms of a guarantee from the U.S. company.
The U.S. parent closed all 133 Canadian Target stores as of mid-April.
RioCan says the space at the 15 former Target Canada stores represented about $8.6 million of annual revenue – a small fraction of the total.
MORE: Target Canada unable to find takers for 55 store leases
An additional 11 former Target Canada locations in RioCan’s property portfolio remain part of the retailer’s court-supervised windup. An auction of the dozens of Target Canada leases is scheduled to be held this week in Toronto.
RioCan’s update was included with its first-quarter financial report Tuesday.
WATCH: A group of young men sad goodbye to Target Canada in their own way – with an impressive acoustic cover of Semisonic’s hit “Closing Time”. The video on Facebook has since gone viral.
— With files from Canadian Press
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