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* Target to open across Canada starting next spring
* Grocery seen at less risk than apparel, general merchandise
* Hudson's Bay, Sears Canada may both be vulnerable
* Beauty offerings could challenge Shoppers Drug Mart
By Allison Martell
TORONTO, Dec 9 (Reuters) - Canadian retailers of all stripes are bracing for the day next spring when Target Corp unlocks the doors of its first stores north of the border, but its instant competitive heft probably won't weigh on all retail stocks equally.
Sears Canada Inc and Hudson's Bay Co - two entrenched department store operators - may have the most to fear from the No. 2 U.S. discounter, retail experts say. Their shares may be most vulnerable.
HBC, which went public in November, has traded below its C$17 offer price since its first trading day, partly because of concerns that its turnaround drive might stall once Target arrives.
By contrast, Loblaw Cos Ltd and Metro Inc, mainly grocers by trade, face a lesser threat from Target, and their shares may hold up better.
That's not to say any retailer can afford to ignore Target. The company has "proven its success in the U.S. The consumer landscape in Canada ... isn't all that different," said Craig Fehr, Canadian market strategist at Edward Jones in Missouri. "It is going to have a meaningful impact."
Target is arriving at a time when most of the retail sector faces sluggish growth, and many shoppers can't wait for the discounter's debut.
Thanks to cross-border shopping trips, Target is already well known in much of Canada. KubasPrimedia, a Toronto market research firm, surveyed Canadians last spring and found that 43 percent had already shopped at Target south of the border.
Thanks to Target's "cheap chic" strategy, the retailer's entry may be felt across the price spectrum.
It competes with Wal-Mart Stores Inc on basic goods such as cleaning supplies, but also offers unique clothing and housewares. Target does not need to price match on those trendy items, and that drives traffic, sales and margins.
A recent report from Kantar Retail concluded that Hudson's Bay is particularly exposed, based on how many of its customers plan to shop at Target.
Sears, majority-owned by Sears Holdings Corp, typically offers lower prices than HBC, closer to Target's discount profile, and the chain is already reeling from steep sales declines in established stores. Its shares have fallen almost 15 percent over the last month.
Thanks to Wal-Mart's big push into the sector, Canada's grocery market is already very competitive.
Stewart Samuel, senior retail analyst at IGD, a research firm specializing in food and grocery, sees Target's Canadian stores offering a smaller food selection than its U.S. outlets, given that its Canadian stores will be smaller than typical Target U.S. stores.
Samuel believes the Canadian outlets may end up resembling the chain's downsized CityTarget stores, which dedicate less space to basic groceries.
Even if grocers are hit, Empire Co Ltd's Sobeys might have bought itself some protection with its deal to supply groceries to Target.
Beyond department stores and grocers, Target's impact is less clear.
Edward Jones' Fehr thinks Canadian Tire Corp Ltd, which sells a combination of auto parts, housewares, apparel and sporting goods across several banners, is particularly vulnerable, but Paul Taylor, chief investment officer of fundamental equities at BMO Asset Management Inc, says it is insulated by its auto parts and sporting goods segments.
Then there is Shoppers Drug Mart Corp, Canada's largest drugstore chain, whose shares are up about 2 percent this year.
Tight rules on prescription drug prices make it tough to compete on price in Canada, said Matthew Coffina, a Morningstar analyst focused on pharmacy: "Pharmacies compete much more on convenience."
Coffina sees some impact on Shoppers' sales of over-the-counter medications and beauty products, one of Target's strengths, but analysts in general are much more concerned about the impact on Shoppers of new government regulations on generic drugs than about Target..
Taylor believes Target's impact is already priced into the market, given that investors and retailers have had plenty of time to prepare. Target announced its store locations months ago.
"The real question will be execution, and that we'll have to wait and see," said Taylor, whose firm owns Loblaw and dollar store chain Dollarama Inc, but not Sears or HBC.
And if sorting through winners and losers seems too risky, investors can always follow Taylor's lead on one point - his firm opted to buy a stake in Target itself.