Target takes 1st step outside U.S. with Canada deal

Thu Jan 13, 2011 6:09pm EST
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By Solarina Ho and Jessica Wohl

TORONTO/CHICAGO (Reuters) - Retailer Target Corp is making its first foray into an international market, taking over Canadian leases for Zellers stores owned by Hudson's Bay Co, North America's oldest company.

The deal sets the stage for the long-anticipated opening of the first Target-brand discount stores outside the company's home turf. By 2014, the No. 2 U.S. discount retailer plans to operate 100 to 150 stores under its own name in Canada, where archrival Wal-Mart Stores Inc already has an extensive presence.

Target, known for its cheap but chic merchandise, will pay Hudson's Bay about C$1.83 billion ($1.84 billion) for up to 220 of its leases and run the stores under the Zellers brand for a period of time. Hudson's Bay, founded in 1670 as a fur trader, will continue to run the rest of the Zellers locations.

Target "had the balance sheet for some time to expand internationally," said Wall Street Strategies analyst Brian Sozzi. "The opportunity is quite sizable for Target - they're going in there with proven sites. It could move the needle, absolutely."

Target, whose shares were down slightly on Thursday, also said it was looking to sell its $6.7 billion credit card receivables portfolio.

The move north will put pressure on Target's profit at first as it invests more than C$1 billion to revamp the Zellers stores and add to profit in the first full year of operations.

It expects its Canadian stores to have similar revenue to its U.S. locations. In 2009, Target earned $2.49 billion on $65.36 billion in revenue.

Minneapolis-based Target, with more than 1,700 stores in 49 U.S. states, ranks as the second-largest discount chain in the United States, trailing Wal-Mart, the industry leader. It has built its reputation on offering a range of lower-priced clothing, housewares and other goods that appeal to more upscale American shoppers.   Continued...

<p>A pedestrian walks past a Zellers store in downtown Ottawa January 13, 2011. U.S. retailer Target Corp on Thursday announced plans to enter the Canadian market, taking over leases for up to 220 Zellers stores owned by storied domestic retailer Hudson's Bay Co. REUTERS/Chris Wattie</p>