Canada in Target's bull's-eye

TORONTO - Target Corp. has yet to open a store in Canada, but the retailer can already count Laurel MacLeod as a loyal customer.

At least once a year, the 28-year-old editorial consultant will drive two hours from her home in Toronto just to shop at a Target store in Buffalo, N.Y. And when she can't make the trip, she asks her mother in Illinois to scoop up merchandise.

"I like Target's design aesthetic," MacLeod said. "There's nothing like that here."

MacLeod is one of thousands of Canadians already quite fond of the Minneapolis-based retailer. And that will be a huge advantage for Target as it embarks on its first major push outside the United States. Canadians familiar with Target say they want the same things they would find at an American store: wide aisles, discount prices, and fashion-forward clothing and home decor.

But the retailer must also attract Canadians who want to see their country reflected in Target stores. "If we came up to Canada and didn't offer ketchup-flavored potato chips, then we would have looked like we didn't know what we are doing," said Target Canada president Tony Fisher. "We have to understand local preferences of local markets and adapt merchandising strategies."

So far, Target has hooked up with Roots Outfitters, a well-known Canadian retailer, to create a limited-edition line of clothing that runs from March to June. The company also will stock more cold-weather gear and appliances like rice cookers, a nod to Canada's ethnic diversity. Target officials say they need to convince Canadian shoppers that they are still getting great value even though it will charge more on some products than it does in America, as is common for U.S. retailers operating in Canada.

Target also faces plenty of competition from such Canadian stalwarts as Hudson's Bay Co., Rona Inc. and Canadian Tire Corp., which will fight to keep their customers. Hudson's Bay has a long history in Canada, dating back to the 17th century when King Charles I of England granted the fur-trading business a royal charter. The firm now operates several department store chains like Zellers, the Bay and Home Outfitters.

Canadian Tire, which sells automotive and sporting goods, also enjoys a strong relationship with consumers, with a staggering 9 out of 10 Canadians visiting the retailer at least once a year and four out of 10 shoppers frequenting the stores once a month, said Toronto-based retail consultant Doug Stephens.

Canada also is attracting plenty of other attention from retailers south of the border. Nordstrom, J. Crew and Ann Taylor will soon expand there. Sears and Richfield-based Best Buy have operated in the country for many years, though both retailers have struggled. Best Buy recently closed 15 stores in Canada.

Then there's Wal-Mart.

The world's largest retailer has been successful in Canada for the same reasons it has dominated U.S. retailing: low prices and broad assortments. That's why Wal-Mart, which already boasts 375 Canadian stores, is hardly standing pat. The retail giant plans to pump another $450 million in Canada, including at least 37 new super centers over 2013, an expanded distribution network and more fresh-food sections. Last year, the company aggressively cut its prices on 10,000 items.

"Canada is Target's to lose," Stephens said. "Wal-Mart is fully circling the wagon."

Still, Target remains a favorite of young urbane customers like MacLeod because of the retailer's emphasis on fashion and style. Plus, Target has been expanding more into food and household items, two traditional strongholds for Wal-Mart.

A new frontier

So why has Canada suddenly become such a hotbed for retail?

The simplest answer is that Canada has not seen much competition from foreign retailers. Homegrown chains like Canadian Tire, Loblaw's and Hudson's Bay have dominated the country for decades with smaller boutiques and mom-and-pop shops dividing the rest of the market.

"From coast to coast, it's pretty much the same group of national chains," Stephens said. "Hopefully, Target's entry shakes up the market."

With so little competition, price wars are pretty rare in Canada. And Canadian consumers are not as aggressive as Americans in chasing down the best deal. A recent survey by WSL Strategic Research showed 55 percent of Canadian shoppers regularly used coupons vs. 68 percent for Americans. The economics of Canada's retail real estate market also prove attractive to foreign businesses. Good store locations along the border regions, where most Canadians live, are hard to find. The exact opposite holds true in the United States, which has a glut of malls and shopping centers.

Reputation precedes Target

A major advantage Target already has is that a surprising number of Canadians already know the retailer. Consulting firm KubasPrimedia found that 43 percent of Canadian shoppers surveyed last year had frequented a Target store and 90 percent of shoppers who shopped at a U.S. Target over the past year were either "very" or "somewhat" interested in shopping at a Target Canada store.

The trick, however, is for Target to satisfy both loyal fans and woo Canadians not familiar with its stores.

"We've talked to a lot of people and what has come back is 'When you come to Canada, bring us the Target experience when we cross the border,'" said John Morioka, Target Canada's merchandising chief. "That's our first priority."

Morioka says Target will adjust its inventory schedule to make sure its stores carry cold weather clothing like jackets, boots and waterproof gear for longer periods of time. The company also is exploring which local ethnic food products to sell.

Some Canadians say they want to see some of their countrymen reflected in Target clothes racks.

"We need to show people the talent we have here," said Eric Toledano, whose men's clothing boutique in Montreal proudly carries Canadian brands like Arcadia Fire, Wolf Parade and Plants & Animals.

To that end, Target is collaborating with the Toronto Fashion Institute to help develop promising designers. The retailer has also launched the Target Emerging Designer Award, in which the winner will receive a $25,000 grant, a full spread of their work in Elle Quebec magazine, and the chance to create an exclusive collection sold in Target stores in Quebec next year.

MacLeod says such outreach is well-intentioned. But in the end, she wants Target to remain Target. "I don't think Target has to change anything," MacLeod said. "Most Canadians want exactly what people have in the States."

Target has already answered that call, recently announcing its name brands for Canada, including Target regulars Nate Berkus, Shaun White and Liz Lange and private labels like Archer Farms and Merona. The layout, look and feel of the stores will also be quite similar to U.S. locations.

Competitors getting ready

Target can expect a fierce fight from Canadian retailers eager to protect their turf, analysts say.

"Target will touch every other retailer in Canada in some shape, way or form," said Manu Sarna, general manager of retail for Aeroplan, which designs customer loyalty programs. "Every retailer has something to win or lose from Target's entry."

Department store chain Hudson's Bay, which declined requests for interviews, has been trying to go more upscale, adding fashion brands and beefing up service. The company also spent $212 million over the past three years to remodel its stores. Last November, Hudson's Bay announced plans to raise $350 million through an initial public offering, a move that will give it extra financial firepower.

For years, Canadian retailers have faced little or no competition from outside companies, Stephens said. That's why the market presents an attractive opportunity to a retailer like Target, he said.

But the retailers with perhaps the most to lose from Target's entry are American.

Like its U.S. counterpart, Sears Canada has been struggling to make its merchandise relevant to consumers, especially as competitors grab market share in electronics, apparel and home goods.

As for Wal-Mart, officials say they are ready for the challenge. "We are ramping up our focus on lowering prices as we continue to bring our super-center format to more Canadians," Shelly Broader, president and CEO of Wal-Mart Canada, said in a statement.

But for now, Target should not deviate too much from the formula that made it a $70 billion juggernaut in the Untied States, analysts and consumers say.

"There is a pent-up demand for Target," Sarna of Aeroplan said. "What they need to do is to capitalize on that in a way that's meaningful for Canadians."

Thomas Lee • 612-673-4113