June 30, 2015

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U.S. stores struggle in Canada

Target Corp., the giant U.S. retail chain, kept CEO Gregg Steinhafel in his job in December when the public learned hackers had collected account information on the company's customers. It kept him still in February when quarterly financial statements showed the company had taken a bath on its expansion into Canada.

This week, however, the board of directors announced his immediate exit. No graceful stay-on-till-a-successor-is-found. Now. Gone. The chief financial officer has taken over as interim CEO and a consultant has been hired to start the search for a new chief.

A pedestrian makes his way along the sidewalk in front of the Target store location at the Shopper's Mall.


A pedestrian makes his way along the sidewalk in front of the Target store location at the Shopper's Mall.

The company will announce first-quarter financial results on May 21. Mr. Steinhafel's abrupt departure on Monday suggested they will not be pretty. If they were showing signs of a turnaround, the company would ordinarily keep him in office to execute his solutions to the data-breach problem and the poor performance of his new Canadian stores. If the board had a new strategy or a new CEO in mind, these would have been announced. All they knew for sure this week, however, was that Mr. Steinhafel's leadership was not working.

Winnipeg shoppers for years have filled the aisles at Target stores in Grand Forks and Fargo, N.D. Target stores close to other Canadian cities have also grown accustomed to throngs of Canadians. There was every reason to think Target stores in Canada would thrive. Target bought Zellers locations from the Hudson's Bay Company and reopened them as Target stores during 2013 and 2014, including Winnipeg stores at Grant Park, Regent Avenue and Southdale.

Shoppers were soon complaining, however, that prices in the 127 Canadian Target stores were higher than they expected. Many consumer goods are priced a little higher in Canada. Shoppers know this and they complain about it. Target's Canadian sales fell short of the company's expectations. In its 2013 financial reports, the company said it had lost $941 million during 12 months in Canadian operations on sales of $1.3 billion. The fourth-quarter result in Canada was a loss of $329 million on sales of $623 million, which showed things were getting no better as the year advanced.

Wal-Mart Stores Inc. has also run into difficulty expanding outside the U.S. retail market it knows well. Wal-Mart reports its U.S. results and its international results separately, with no separate figures for Canada. For 2013, the company reported a small decline in sales and a 46 per cent drop in profits in the international segment. The president of international operations said at the time he had initiated actions in Mexico, Brazil and China to improve performance.

Other U.S. retailers considering expansion into Canada will be picking through the details of Mr. Steinhafel's experience to see where he miscalculated. They may conclude Canadian shoppers reluctantly accept over-pricing by Canadian retailers, but when a U.S. chain moves in here, they want to see U.S. prices.

Republished from the Winnipeg Free Press print edition May 8, 2014 A12

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