Target says it will spend as much as $2.3 billion on Zellers renovations

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(NATHAN DENETTE / THE CANADIAN PRESS)

TORONTO - Target Corp. is now planning to spend up to $2.3 billion to convert Zellers stores to its brand and integrate them into its retail network, about double what the company originally budgeted for its first expansion outside the United States.

The U.S. retail giant had previously planned to spend about $1 billion to convert Zellers locations that it will acquire from Hudson Bay Trading Co. into Target stores, the U.S. retailer said in regulatory filings.

"We plan to invest between $1.8 billion to $2.3 billion over the next three years to renovate sites that we intend to convert into Target stores, establish supply chain capabilities, and build information-technology infrastructure," it said.

"The amount we ultimately invest will be largely dependent on the number of sites we elect to convert into Target stores."

The company also said it will open a majority of its planned 100 to 150 Canadian stores in 2013.

Target announced in January it would spend $1.83 billion to take over the leases of as many as 220 Zellers stores.

"We are still in the process of evaluating each location currently leased by Zellers," the company said in the filing.

The discount-chic retailer made the first of two $912.5 million payments last week to Hudson's Bay and unveiled the first 105 Zellers locations that it plans to take over. It has the right to select another 115 locations when it makes a second payment in the third quarter.

Target said the chosen locations will continue to operate as Zellers stores before closing for six to nine months and then reopen as Target stores after some significant remodelling.

Zellers locations that Target acquires, but does not convert to its banner, will be leased back to Zellers or potentially other retailers.

Target, a 109-year-old American retailer that was part of Dayton-Hudson Corp. before changing its name in 2000, is one of the biggest U.S. department store chains, with revenues of more than US$67 billion in its last fiscal year.

The company has more than 355,000 employees and is the second-biggest discount retailer in the U.S. after Wal-Mart Stores Inc.

Target is expanding to Canada in a similar way Wal-Mart did in 1994, when it bought the chain of Woolco department stores in Canada, refurbished them and renamed them Wal-Mart Canada.

Hudson's Bay has 279 Zellers locations. Stores that Target does not want could be sold to other retail giants such as Wal-Mart (NYSE:WMT) or could remain in the hands of HBC, which also owns The Bay and Home Outfitters.

Target also announced it will establish a Canadian headquarters in Mississauga, Ont., just west of Toronto. The retailer has signed a deal for 180,000 square-feet of office space that will be occupied in early 2012 after some remodelling.

Each store in Canada is expected to employ 150 to 200 people.

Target, based in Minneapolis, has 1,755 stores in 49 states.