The Dec. 26 holiday is a time for Canadian shoppers to hit the stores, and Target is working hard to win them over.
Target Corp.’s campaign to win over Canadian consumers continued Thursday with 6 a.m. store openings and early bird deals for one of the nation’s top shopping events of the year — Boxing Day.
Many Americans have probably never heard of the holiday. But for the nations of the British Commonwealth, including England, Australia and Canada, the day is a major shopping event, akin to Black Friday in the United States.
“We have seen tremendous excitement at our stores across the country,” Target Canada President Tony Fisher said in a statement.
Target can’t afford to squander any opportunity to court Canadians. The debut of 124 stores in Canada this year, Target’s first international expansion, has been marred by disappointing sales, supply chain problems, and the stubborn belief among Canadian consumers that the Minneapolis-based retailer is more expensive than its competitors.
A solid holiday performance in Canada could help put those issues to rest or further ingrain them in the minds of shoppers and investors, said Toronto-based retail consultant Doug Stephens.
“The holidays are perhaps a second chance for Target to make a good first impression,” Stephens said.
For a company that prides itself on detailed planning and flawless execution, Target’s foray into Canada has been anything but. From the first stores that opened outside Toronto in March, reports of out-of-stock grocery products generated unfavorable chatter.
As the numbers started to roll in, Target officials confirmed what many had suspected: Sales and gross profit margins were falling behind projections.
In addition to the grocery problems, the company said it had to discount an oversupply of seasonal goods and needed additional efforts to position Target as a price leader compared with Wal-Mart and the Canadian chain Loblaw’s.
“We knew there would be things we’d have to improve on throughout the year,” including inventory and price perception, Fisher recently told investors. “Since opening, in-stocks have been and remain our No. 1 challenge and our No. 1 opportunity … And we’re doing whatever it takes to clear excess merchandise out of our supply chain so we can more efficiently and correctly flow product from our distribution centers to our stores.”
“And the holiday campaign we designed specifically for Canada will aggressively showcase Target’s value proposition and our role as a truly unique one-stop shopping destination,” Fisher said.
Boxing Day has actually lost some of its punch over the last two years. Canadian retailers are increasingly adopting Black Friday as the premiere shopping event of the season, mostly to win back shoppers who cross the U.S. border the day after Thanksgiving looking for holiday deals.
“Some people are wondering if Boxing Day is still relevant anymore,” Stephens said.
Despite the slow start in Canada, Target executives are sticking to their initial projection that the retailer will hit $6 billion in sales by 2017. However, Wall Street is having a difficult time believing those numbers, said Brian Yarbrough, a retail analyst with Edward Jones Investments in St. Louis.
For Target Canada to meet its goal, the retailer would have to increase its annual sales by a factor of five or six in just three fiscal years, a difficult feat for any retailer in even a good economy.
And Canada’s economy seems to be slowing. The country’s central bank recently estimated that the economy will close out this year with just 1.6 percent GDP growth.
“In Canada, uncertain global and domestic economic conditions are delaying the pickup in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting,” the Bank of Canada said in a report.
At the same time, the bank said tighter credit and higher interest rates on mortgages might reduce household spending. Still, the bank expects Canada’s economy to grow a healthier 2.3 percent in 2014 and 2.6 percent in 2015.
Kantar Retail, a consulting firm in Boston, now predicts that Target Canada will generate $3.1 billion in annual sales by 2017, about half of what the retailer is promising today.
Nevertheless, Target officials say they remain confident about Canada’s prospects.
“When I look at the enhancements we’re making and the experience our team is gaining each day,” Fisher told investors, “I’m very optimistic that Target Canada will play a significant role in Target’s future — and will achieve our goal of $6 billion in sales.”
Thomas Lee • 612-673-4113