Target's Canadian exit puts some MN jobs at risk

Shopping at Target
Dresden Gagne, left, and Boran Ding fill their vehicle after shopping at the Super Target in the Midway area of St. Paul, Minn. Thursday, Jan. 15, 2015.
Jeffrey Thompson / MPR News

Updated 2 p.m. | Posted 7:39 a.m.

Target Corp. said Thursday it will stop operating its 133 stores in Canada and exit the country's market.

The decision comes after disappointing holiday sales at the Canadian stores, which have lost money since Target expanded into the country in 2013. The Minneapolis-based retail giant expects the cost of liquidating the stores to run $500 million to $600 million.

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Financial results from the holiday season made clear the company was failing to win over Canadian consumers, said CEO Brian Cornell, who took over Target a few months ago.

Target pulled the plug after concluding the Canadian operation would not become profitable until 2021, he said Thursday.

The closing means that more than 17,000 Canadian employees will lose their jobs.

The retreat will also result in job losses for those who work on Canadian operations from the Twin Cities.

About 600 people work in Minnesota on Target's Canadian operations, but it's too early to say how many may be laid off or when, said Target spokeswoman Molly Snyder. Executives will be evaluating positions on a case-by-case basis, she added.

"We do expect there will be a reduction in headcount," she said.

Elisha Cuthbert
In 2013, Target opened stores in Canada to much fanfare. Here, actress and model Elisha Cuthbert tours a store in Toronto as part of a promotional event. The company now plans to close up shop in Canada.
Arthur Mola / Invision / AP 2013

Target investors applauded the news. Company stock was up more than 2 percent in afternoon trading Thursday.

"I'm not shocked by the actual exiting. I am a bit shocked by the timing," said Brian Yarbrough, an analyst who follows Target for the investment firm Edward Jones.

"I thought it would have been later this year and maybe they would have tried to restructure it and maybe close some stores," he said. "This just tells you how bad the initial foray into Canada has turned out to be."

Store liquidations will take about 16 to 20 weeks on average and will likely close in waves, the company said.

Target overestimated its opportunity in Canada and made several "operational missteps," said retail analyst Antony Karabus of HRC Advisory. "They opened too big, too fast," he said. "Opening 130 stores in a year is just way too fast and too many."

Karabus said Target also underestimated Canadian consumers' loyalty to existing retailers, and that Target set product prices too high.

In a statement posted on Target's website, CEO Brian Cornell said the decision was made with the full cooperation of the company's board of directors.

"After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021," Cornell said. "Personally, this was a very difficult decision, but it was the right decision for our company."

The company's operations in Canada have accumulated pre-tax losses of $2 billion.

Target expects to report about $5.4 billion of pre-tax losses from the discontinued operations in the fourth financial quarter of 2014, mostly due to exit costs and the write-down of the Canadian operations. The company predicts the fiscal 2015 loss on those operations to be $275 million.

The stores will remain open during liquidation. The company on Thursday said the Ontario Superior Court of Justice give the OK to create a $59 million employee trust to provide most Target Canada employees with 16 weeks of compensation.

The complete exit from Canada reflects Target's tactical shift under Cornell, who took over as CEO last summer, said retail consultant Carol Spieckerman.

Target's old leaders "would have said, 'Hey, let's sort of pull back. We're not willing to admit defeat in such a big way,'" she said.

"The new administration," she said, is about "failing fast, moving on, ripping off the Band-Aid."

MPR News reporters Matt Sepic, Martin Moylan and Bill Catlin contributed to this report.