Target Corp. has decided to shut down its money-losing
foray into Canada, concluding that the efforts needed to fix those operations
would distract executives from the bigger task of turning around the
discounter’s sluggish U.S. business. The reversal ends a big, expensive attempt
to expand beyond the U.S. Target spent the equivalent of more than $4 billion
setting up its Canadian operations, which now encompass 133 stores and 17,600
employees. But a series of missteps from poor store locations to bad
pricing decisions produced $2.5 billion in losses, and Target determined that
the red ink couldn’t be stopped for another six years. On Thursday, Target said
the operations would be liquidated.
Target’s move to cut its losses signals that new Chief
Executive Brian Cornell is prepared to act decisively to get the retailer back
on track. Since taking the top job in August, the former PepsiCo executive
has crafted plans to refocus on a handful of core departments like
baby products and fashion in the U.S., shifting away from the grocery-heavy
approach of his predecessor, who left following an executive revolt.
A team of Target executives and outside advisers spent the
two months before Christmas visiting all 133 Target stores in Canada to
evaluate shopping trends, inventory levels and other indicators of performance.
Mr. Cornell made several visits to tour stores as well.
The company considered a number of options. Mr. Cornell concluded it was a no-win
situation and delivered the verdict to Target’s board during a regularly
scheduled meeting in Minneapolis on Wednesday.
On Thursday, Target said its sales over the holiday season
came in better than expected. It now expects to report a 3% climb in U.S. sales
excluding newly opened or closed stores for the months of November, December
and January, better than the 2% gain it had expected.
The exit from Canada will cost the company as much as $600
million. Target expects to book a $5.4 billion pretax loss on discontinued
operations in its fourth quarter ending this month. Target’s shares were up
2.6% Thursday morning amid a broader market decline.
Customers who had been so enamored of Target that they would
drive across the border to shop in U.S. stores were disappointed by the prices
they found. Inventory gaps were a problem as well. The discount chain told
investors that its Canadian business would be profitable by the end of 2013,
but the division quickly began to lose money. On Thursday, Target’s application
to begin the liquidation process was approved by an Ontario court. It is asking
permission to set aside $59 million to pay most employees 16 weeks of severance
pay.
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