For years, Canadians would cross the border to the U.S. to shop at Target. Exporting its cheap chic there seemed like a no-brainer.
But a year after opening more than 100 stores north of the border, Target has found business isn’t so easy.
Shelves are hard to keep stocked. Shoppers complain the prices are higher than at U.S. stores. Sales have been weak, and the retailer lost nearly a billion dollars in Canada for the year. Cracking the Canadian retail market, about one-tenth the size of the United States’, looks simple. The two countries are neighbors. They are culturally similar. And Canada’s malls generate 20 percent more sales per square foot, because there are fewer of them.
But Target’s difficulties expose the challenges of doing business in Canada that have bedeviled other retailers. Some of the problems are old, like the web of costly regulations.
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But there are new ones, such as a slower Canadian economy and increasing competition that’s making the retail landscape look a lot like the U.S. economy.
The troubles are not what stores expected just a few years ago during the depths of the recession, when they saw Canada as a risk-free way of expanding internationally and re-energizing sales growth.
Now, Target is increasing marketing to convey it has unbeatable prices, while trying to make sure it has the right merchandise at the right time.
“I think there was an assumption that Target would come in and be everybody’s favorite store, but that hasn’t happened,” said Antony Karabus, president of Hilco Retail Consulting, who is based in Toronto.
Target has to fight hard to win over Canadians like Melanie Randall, a Toronto resident who crosses the border four times a year to Buffalo, N.Y., for shopping sprees at the store.
As for the Canadian Target stores, “It’s not the same,” said Randall, 42, who was recently browsing Target at Toronto’s East York Town Centre. “I don’t feel like I get the same deals or shopping experience.”
Target’s tough time in Canada isn’t unique.
Big Lots is closing its 78 Canadian stores, which it bought just two years ago. Executives declined to comment, but Karabus blamed increasing competition amid discounters.
Best Buy announced last year it was closing 15 of its 260 stores in Canada and cut about 5 percent of its workforce in the country as it tries to revamp its strategy.
Even Wal-Mart Stores, which have been entrenched in Canada for more than two decades, have seen sales falter. One big problem: U.S. retailers tend to underestimate the much different employee-benefit laws and other rules, including language regulations. All product packaging must be in both English and French. In Quebec, stores are required to make French more prominent in marketing and signs.
Canada also has a tenth of the population of the U.S. but covers a larger area. That makes distribution more costly. Aside from those complications, Canadian shoppers are under new financial pressures. The Canadian dollar has weakened, forcing retailers to charge higher prices.
Because 90 percent of Canadians live within an hour’s drive of the U.S. border, they are used to crossing over to compare deals, according to Diane Brisebois, president and CEO of Retail Council of Canada.
Competition is also heating up, particularly in discount retailing. Homegrown Canadian standbys like Dollarama and Canadian Tire are formidable rivals.
Canadian Tire, which operates nearly 500 stores in the country and stocks housewares, barbecue grills and other items besides tires, has increased its marketing and deepened its assortment of home décor and other areas.
Canadian Tire, which has been in business nearly 100 years, has loyalty with shoppers, said Jim Danahy, CEO of CustomerLAB, a retail consultancy in Ontario.
Given the challenges, Seattle-based Nordstrom just postponed the Canadian debut of its discount Rack stores by two years until 2017 as it prepares to open its first full-line department store in Calgary this fall.
A key to Target’s plans: convincing shoppers it’s priced right. Target said it’s not planning to permanently cut prices. But it acknowledges they’re generally higher than at its U.S. stores.
“We are right on where we need to be in Canada,” Gregg Steinhafel, Target’s CEO told investors. “Sometimes people compare prices from Canada. That would be like comparing prices in Boston to what we have in rural Iowa.”