Analysis: Canada's cold shoulder to Target a cautionary tale

Tue Dec 3, 2013 5:09pm EST
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By Susan Taylor and Solarina Ho

TORONTO (Reuters) - U.S. retailers looking north in their quest for growth should consider the frosty reception Canada has so far given trendy discounter Target Corp a cautionary tale: what looks like a simple border crossing can easily go wrong.

On the surface, Canada seems a good bet for retailers tiptoeing outside the United States, with Nordstrom and Saks among those now lined up to test the market. But winning over Canadians is no cake walk, and name recognition alone won't do the trick.

"The bottom line has to be the price," said Peter Tong, a 38-year-old transit system designer who spends many lunch hours browsing at the Eaton Center mall in downtown Toronto, where a good number of U.S.-based retailers are located.

The Black Friday sales there were "hyped up," he said. At the JCrew store, a C$260 ($240) cashmere sweater is 30 percent off, but a quick check on Tong's iPhone shows it sells for $200 at JCrew in the United States, with the same discount. "Why are we paying C$60 - and 13 percent taxes - on top?"

Retailers underestimate the importance of pricing in Canada at their peril, and Target's experiences are a case in point.

Target had big plans for Canada earlier this year when it started opening the first of an unprecedented 124 stores in one year, along with three distribution centers.

But it disappointed shoppers with prices above those it charges in the United States, and then with empty shelves as it miscalculated demand and struggled with managing inventory.

Admitting it has had problems in its first international expansion, Target last month cut its full-year profit forecast, due largely to lower-than-expected sales in Canada.   Continued...

The new Target store is seen in Guelph, Ontario, March 4, 2013, on the eve of its opening. REUTERS/Geoff Robins