U.S. retailers going north getting cold shoulder

Target, other stores find crossing border difficult

Shoppers enter a Target store in Dartmouth, N.S., on Black Friday last year. Since its incursion into Canada in 2013, Target’s troubles have included difficulties keeping the shelves stocked and weak sales, resulting in nearly a $1 billion loss for the year.

CANADIAN PRESS

In March, 2013, signs for the new Target store in Guelph, Ont., and the popular Canadian Tire appear to fight for attention for Canadian shoppers.

TORONTO — For years, Canadians would cross the border to the United States 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 Corp. 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 countries are neighbors and culturally similar. Canada’s malls generate 20 percent more sales per square foot because there are fewer.

But Target’s difficulties expose the challenges of doing business in Canada that have bedeviled other retailers. Some of the problems are old, such as the web of costly regulations. But there are new ones, such as a slower Canadian economy and growing competition that’s making the retail landscape look a lot like the United States.

The troubles are not what stores expected just a few years ago during 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 in Toronto.

Target has to fight to win over Canadians such as Melanie Randall of Toronto who crosses the border four times a year for shopping sprees at the store in Buffalo.

As for the Canadian Target stores, “It’s not the same,” said Ms. Randall, 42, while browsing a Target site in Toronto. “I don’t feel like I get the same deals or shopping experience.”

Shoppers enter a Target store in Dartmouth, N.S., on Black Friday last year. Since its incursion into Canada in 2013, Target’s troubles have included difficulties keeping the shelves stocked and weak sales, resulting in nearly a $1 billion loss for the year.

Target’s tough time in Canada isn’t unique.

Big Lots Inc. is closing its 78 Canadian stores, which it bought just two years ago. Best Buy Co. Inc. announced last year it was closing 15 of its 260 stores in Canada and cut about 5 percent of its work force in the country as it tries to revamp its strategy.

Even the sales at Wal-Mart Stores Inc., which has been entrenched in Canada for more than two decades, has faltered.

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 English and French. In Quebec, stores must make French more prominent in marketing and signs.

Canada also has a tenth of the population of the United States but covers a larger area. That makes distribution more costly.

Plus, Canadian shoppers are under new financial pressures. Its 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, said Diane Brisebois, president and CEO of Retail Council of Canada.

Competition is also heating up, particularly in discount retailing. Homegrown Canadian standbys such as Dollarama and Canadian Tire Corp. are formidable rivals.

Canadian Tire, which has nearly 500 stores and stocks housewares and other items besides tires, has increased its marketing and deepened its assortment of home decor and other areas.

Each store is also owned and operated by a dealer, so it tailors its merchandise to the local market, whether a farm town or a big city. The stores also offer convenience: Ninety percent of Canada’s population lives within 15 minutes of a Canadian Tire store.

Given the challenges, upscale Nordstrom just postponed the Canadian debut of its discount Rack stores until 2017 as it readies its first full-line department store in Calgary this fall.

Some, such as Wal-Mart Canada and Marshalls parent company TJX Cos. Inc., are digging in.

Wal-Mart is adding 35 super centers in the current fiscal year, bringing the count to 395 by the end of January, 2015. However, the retailer, citing price competition and weak spending, reported in February a 1.7 percent drop in revenue at Canadian stores open at least a year in the fourth quarter.

Major U.S. retailers such as Sears and Wal-Mart entered Canada in the 1990s, but momentum increased after the Great Recession as the Canadian economy was hurt less by the financial meltdown.

As U.S. consumers soured on spending, Canadians continued to buy, nearly catching up to their American counterparts based on retail sales per household, said Colliers International, a global real estate firm.

That’s a big deal. For years, Americans were much bigger spenders than Canadians. As recently as 2004, Canadian retail sales per household equated to $8,000 U.S. while south of the border, Americans’ spending was 50 percent higher at about $12,000 per household.

But after spending plunged in both countries in the recession, the gap is again widening, with U.S. retail sales per household at about $14,394; it’s $13,014 for Canadians, Colliers said.

That’s because Canadians are deeper in debt than Americans, on average, because many bought big-ticket items such as homes at low interest rates. That has left less room for impulse spending.

The environment has pressured American retailers to closely monitor prices, which are generally 10 percent to 15 percent higher in Canada than at U.S. stores, Danahy said.

Clothing retailer Tommy Bahama has nine stores in Canada. Prices there were 15 percent to 20 percent higher than its U.S. stores. It’s now bringing its prices even with those at its U.S. stores after acquiring its Canadian business back from its licensee.

“[Canadians] are used to watching currency fluctuations and using that to their advantage,” said Doug Wood, Tommy Bahama’s president and chief operating officer.

Analysts are watching Target Canada. Target said the stores carry a majority of the merchandise shoppers see at U.S. stores. And Target said it is improving its selection and fixing out-of-stock issues.

It has much work ahead: Target’s Canadian business recorded a $724 million loss on lower-than-expected sales of $1.3 billion for the year ended Feb. 1.