Zellers set to become a Target

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This article was published 14/01/2011 (5408 days ago), so information in it may no longer be current.

TORONTO — The big red Zellers banner, long a beacon to the frugal Canadian shopper, will begin to fade from many strip malls and shopping centres across the country next year, to be replaced by the giant red bull’s-eye logo of Target, its flashy U.S. cousin.

Target Corp. announced Thursday it will spend $1.83 billion to take over the leases of as many as 220 Zellers stores of its choosing from the 279 locations currently owned by the storied Hudson’s Bay Co.

The Minneapolis, Minn.-based chain plans to have between 100 to 150 remodelled stores running by 2014.

Target has been eyeing entry into the Canadian market for years and the deal allowing it to choose which Zellers stores it wants provides a platform for growth, Target president and CEO Gregg Steinhafel said in an interview Thursday.

“This really enables us to hit the ground running in all the major metropolitan areas in a meaningful way,” he said.

The Zellers brand won’t disappear altogether. Zellers will continue to lease the locations from Target and run them as Zellers stores for the next two years. Another 60 locations will remain in the Bay’s stable of properties. Store locations Target does not want could be sold to other retail giants like Walmart.

“We will be running all Zellers stores through 2011 and into 2012, where select stores will be closed and then the stores renovated and reopened as Target stores,” said Richard Baker, chairman and chief executive of HBC.

The contracts of Zellers’ 10,000 full-time employees and 18,000 part-time workers would end when Zellers stores close. However, Steinhafel said the workforce in a typical Target store is about double the size of the average 110 employees per Zellers store. He said the deal would create a net 20,000 jobs.

Current Zellers employees would be encouraged to apply for jobs at the Target locations, he said. Target will also give back to communities by donating five per cent of its income to local charities, as it does in the U.S.

“We hope to not only bring the (U.S. Target) experience to Canada, but enhance that experience so they feel like it’s their Canadian Target with a customized assortment and really localized engagement,” Steinhafel said.

About 70 per cent of Canadian consumers are already familiar with the Target brand and 10 per cent have shopped at a Target store in the last 12 months, according to the chain’s research.

The retailer plans to spend the next two years working to understand Canadian consumers’ tastes and needs. For example, it will reach out to Canadian designers for possible collaborations, similar to those it has with recognizable American designers.

Target is known for choosing locations that are larger than most big-box stores, central to bustling communities, clean and bright and often architecturally appealing.

The typical Zellers store is much smaller than a Target, where stock volumes average about two or three times higher, but Steinhafel said the company is looking to invest more than $1 billion to renovate the locations and grow square footage in some stores.

“Ultimately, we would love to have bigger stores,” he said.

Infrastructure investments will be made on a store-by-store basis, but will average around $10 million per site, he said. Target also plans to build some ,new stores and expects a total of 200 stores in Canada over the next decade.

Baker said the Bay plans to use proceeds from the sale to pay down debt and “spend aggressively” on its other brands, including the Bay and Home Outfitters, as well as Lord & Taylor’s in the U.S.

Target is second in size only to Walmart in the U.S. but has marketed itself as more youthful and cutting-edge than its competitors by carrying both discount products and more trendy shopping goods.

— The Canadian Press

Here’s the deal

1. Target is not buying Zellers per se. Target is shelling out $1.825 billion for up to 220 leasehold interests of Zellers locations that have yet to be decided. Zellers owner, U.S. real estate investor Richard Baker, took over the mostly leased Zellers chain when he bought Hudson’s Bay Co. in 2008 for $1.1 billion. The worth of those long-term leases — with large landlords such as RioCan Real Estate Investment Trust — and how much another business would pay for them were the largest barriers to a deal like Thursday’s.

2. Zellers will still exist for awhile, albeit in a scaled-down version. There are 279 Zellers outlets across Canada and there is no guarantee at this point that Target will take over all but 60 of them; the Minneapolis-based company has simply bought the right to do so. The U.S. mass retailer wants to open 100 to 150 Target stores across Canada, beginning in 2013, and Baker will keep operating many of the remaining locations as Zellers stores until Target decides in the next few months which ones it wants to keep.

3. Zellers will likely disappear in the next five years. Industry experts predict Baker will negotiate the sale of the remaining leases to parties who want to cherry-pick locations that are compelling to them. Depending on the square footage and demographics, those parties could include established Canadian retailers such as Dollarama and Giant Tige, companies that have been expanding and looking for big pieces of real estate, such as home improvement chain Lowe’s or Marshall’s, a corporate sibling to Winners and Home Sense; or retailers that have reportedly been looking to enter the Canadian market, such as Kohl’s and J.C. Penney.

4. Canadians will finally be able to get their hands on Target’s private brands, including its top-selling Target home decor and furniture collection and limited-edition goods from partnerships with A-list designers such as William Rast or Stella McCartney. “We are very excited to bring our broad assortment of unique, high-quality merchandise at exceptional values and our convenient shopping environment to Canadian guests coast to coast,” said Target CEO Gregg Steinhafel.

5. You can expect some attention-grabbing deals from Walmart Canada as it prepares for Target’s entry. The world’s biggest retailer won’t take the arrival of its biggest U.S. rival into one of its top-performing markets in the world lightly.

— Postmedia News

Comparing

two retail chains

Zellers

— Founded in 1931 when Kitchener, Ont. native Walter Zeller purchased 14 Canadian locations of American retailer Schulte-United.

— Acquired by Hudson’s Bay Co. in 1978.

— Locations in Canada: 279

— Staff: 10,000 full-time employees and up to 18,000 part-time workers

— Average store size: 8,700 square metres

— Offerings: Apparel, family restaurants in most locations, Neighbourhood Market (grocery section), pharmacy in English-speaking provinces.

Target

— First Target location opened in 1962 in Roseville, Minn.

— Locations in the United States: 1,752 stores in 49 states

— Staff: 351,000 as of the end of fiscal 2009

— Average store size as of fiscal 2009: 21,548 square metres.

— Revenue in fiscal 2009: US$63.4 billion

–Offerings: Most stores feature a photo processing centre, a pharmacy and a Food Avenue restaurant. About 240 locations feature an upscale grocery shopping section.

— The Canadian Press

How shoppers

see the switch

“I went to Target once, but I was young. But you see the commercials. I like the stuff.”

— Christine Macapagal

“They’re not going to be the same in Canada as in the U.S. The prices are always different. Like with Bed, Bath and Beyond, we still go to the U.S.”

— Anne Anderson, who “always” goes to Target when she visits the U.S. with husband Russell Anderson

“What can you do? Everything is American these days in Canada. We lost K-Mart years ago. It’s a shame, but what can you do?.”

— Richard Lachuta

“I think reputation-wise, Target will bring in more business. It has a better reputation.”

— One female Zellers shopper

“This has been in the works for a long time. We used to work at Zellers (about five years ago) and even then we’d get some stuff shipped in Target boxes. I think it’s going to be the same.”

— Lisa and Scott Slater