Target in Canada: Bullseye or Off the Mark?

Is Target in Canada failing?

It appears Canadians aren’t welcoming the bullseye brand with open arms as much as hoped. Target’s profits for the second quarter of 2013 were $611 million, down from $704 million just a year ago. The retail firm’s expansion into the great white north has led to softness in earnings. The Target in Canada expansion is only half over – although it has already opened 68 stores, it hopes to open another 56 stores by the end of 2013. Will Target be able to turn it around before it’s too late?

Investors Are Not Impressed

The third quarter of 2013 isn’t looking so rosy either. Target estimates its third quarter adjusted earnings per share (EPS) will be between 80 and 90 cents U.S. and net income will be between 55 cents and 65 cents. That doesn’t include adjusted EPS of 22 cents related to Canadian expansion. Target now forecasts its 2013 adjust earnings fall between $4.70 and $4.90 per share. How does this translate to Target’s balance sheet? It has worried some investors, as the stock fell more than three per cent.

Customer Satisfaction Down

When Target first opened its door in March, Canadians waited in line in the cold to be the first ones to dash down the aisles. The honeymoon appears to be short-lived. Only 27 per cent of shoppers said they were “very satisfied” with their shopping experience at Target, down from 32 per cent just a few months ago, according to a survey from Forum Research. It doesn’t bode well when compared to retailers like Costco and Hudson’s Bay Co., who scored 62 per cent and 40 per cent respectively in customer satisfaction.

What is behind the customer dissatisfaction? Complaints of higher prices, limited selection, and even bare shelves have plagued the U.S. retailer. “We know there is a gap in guest awareness of how low our prices really are,” says chief executive and chairman Gregg Steinhafel. “We are deploying multiple tactics to help our guests better understand the great value and convenience we provide in these categories.”

Sears Canada Feeling the Pinch

Target isn’t the only major retailer having difficulties competing in the Canadian market. Sears Canada recently announced it was cutting 245 white collar jobs from its head office.  It is outsourcing the majority of the work to India and the Philippines, where it can pay workers lower wages. “We can be more efficient and be able to serve our customers better by letting [IBM and Wipro] invest in things they are good at and letting us invest in our core retail business,” says Vince Power, Sear Canada’s vice-president of corporate affairs and communications.

Sears Canada is trying to turn its fortunes around, after suffering seven consecutive years of falling sales revenue. Earlier this year it closed four of its prime locations and laid-off 700 employees, to prepare for the new entrant Target and remain the black.

It’s not going to get any easier for retailers like Target and Sears Canada. After the recent bombshell announcement of the merger of Shoppers Drug Mart and Loblaw, it’s only going to be more of an uphill battle. Target will have to be at the top of its game if it hopes to retain its customers and attract new ones.

 

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