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With sales of “discretionary” products like clothing and electronics in the U.S. declining after the Great Recession, Target assumed the same would be true in Canada. But many Canadian shoppers didn’t yet see Target as a destination for necessities like food and medicine. They gobbled up clothing and home items, which led to shortages. The items they were less interested in piled up in warehouses.
“Think about it, this stuff’s coming over from China,” Yarbrough said. “It’s several months to correct that. Once all this inventory’s on the boat, it’s coming in. You can’t cancel it.”
Executives at Target say the company will launch a marketing campaign to persuade Canadians to buy food, household goods, beauty products and medicine at Target — the sorts of essential items that drive traffic to stores. The company still expects to do $6 billion in sales in Canada by 2017, compared with $1.3 billion in 2013.
“If you think about ... opening 124 stores in less than a year,” Hausman said, “now that we’ve got that done, we can focus on some of the operational improvements that we know we need to make.”
In August, Steinhafel cited “price perceptions” as a problem that Target had to overcome in Canada. Canadians are sensitive about prices because goods and services usually cost more than in the United States due to higher transportation costs and tariffs. Canadian shoppers also cross the border to shop at U.S. Target stores because the merchandise is cheaper. So naturally they were disappointed when Canadian stores didn’t offer the same prices.
“My experience was like an expensive version of Wal-Mart, but with less quality than Wal-Mart has,” said Cherish Wierenga, a student in Edmonton.
The selection, quality and prices in the Target at the busy West Edmonton Mall don’t compare to what Wierenga saw in visits to Target in Chicago and Washington, D.C.
“I’ve been there probably three or four times,” she said. “Each time I’m hoping that there’s going to be a change. But I’m kind of disappointed and haven’t made it a regular routine.”
In October, Steinhafel said he’s confident that Target Canada will become profitable.
“The fundamental aspects of the power of these trade areas lean really, really heavy toward the demographics that ultimately love Target,” Steinhafel said. “We are just going to work tirelessly until we fix the issues and we get the guests to love us as much in Canada as they do in the U.S.”
The company is projecting a $150 million to $170 million loss in Canada in 2014, which sounds about right to Yarbrough. He expects major improvement over the course of the year, but he doesn’t see the company hitting its Canadian goal of 80 cents in earnings per share by 2017.
“If they make a quarter of what they expect, I think that’s still going to be a victory in investors’ eyes,” Yarbrough said.
Adam Belz • 612-673-4405 • Twitter: @adambelz