TORONTO -- Target, not surprisingly, was the brand on every rival retail executive's lips at a conference last week.
What was surprising was the Minneapolis-based mass merchant's take on the Canadian retail scene: a lot tougher and more competitive than it would initially appear to be, particularly in the grocery category.
"There is obviously a lot less retail square footage per capita in Canada, and that would lead you to believe a little bit less competition," John Mulligan, chief financial officer and executive vice-president of Target Corp., told an industry audience at CIBC's annual Retail and Consumer Conference. "Perhaps that is true. But when you look across the spectrum of operators, (there are some])very, very strong operators in Canada. The grocery retailers are very strong, much stronger than in the U.S. Canadian Tire is an outstanding operator... Walmart is formidable wherever they operate. We recognize that we need to do the things we do well extremely well."
Last month, after two years of planning and hype, the U.S. retailer opened the first 24 of the 124 planned Canadian stores in 2013. Thereafter it plans to open five to 10 stores per year in Canada to about 150 locations by 2017.
Target's arrival comes to a marketplace ripe for the format, according to a CIBC World Markets economic report published for the conference.
"Canadians have heard the message from Ottawa: Be careful what you borrow for," said the report from the bank's chief economist, Avery Shenfeld.
Retail sales rose just 2.5 per cent last year. In 2010, retail sales grew 5.6 per cent and Canadians were more willing to fund their spending habits with low-interest debt.
"Turning more prudent on debt accumulation has meant leaner times for retail spending growth over the last year," Shenfeld said. "In that climate, discount stores will continue to grab market share, particularly given the entry of a major U.S.-based player this year."
In the meantime, retailers including Canadian Tire, grocery giant Loblaw Cos., and department store Hudson's Bay Co. outlined their defensive strategies, noting Target's pending arrival put them all on notice.
"We went category by category in order to prepare," said Sarah Davis, chief financial officer at Loblaw, who said Target's arrival thus far had not made much of an impact on already tightly competitive prices in the Canadian market.
"It is on par with what Walmart has today," Davis said.
Given Target's assortment of food is relatively small, it poses the most obvious category threat to Loblaw's Joe Fresh apparel line. "We do believe that Joe is better priced for the quality of our product," she said, but noted there is only a finite amount of consumer money to go around between retailers.
-- Financial Post