By Darrell Flewell
The arrival of Target Corp to Canada is touted as positive economic news on a national scale. The patriotic ego of discount retail shoppers in Cobourg who have chosen to stick with Zellers over Wal-Mart, will initially suffer a significant blow if our local Zellers store is on the list of stores to be converted or closed.
On January 13, the Hudson’s Bay Co (HBC) issued a remarkably short press release stating Target Corp paid C$1.825 billion to acquire up to 220 Zellers real estate leases. HBC is a conglomerate operating The Bay, Zellers, Home Outfitters, and Fields. Note Zellers as a business has not been purchased. Target Corp plans to reopen 100 to 150 stores in 2013 and 2014 as Target outlets.
One-hundred to 150 stores are much less than the 220 business leases purchased. According to the release, Zellers stores in certain communities will continue to operate. It seems then, that a large number of stores will initially close; some to be renovated into “cheap-chic” Target stores (in some cases perhaps, a Target Superstore with a grocery) and some that will simply not reopen at all.
The press release also says a net gain of over 20,000 jobs will result across Canada and over $1.5 billion in economic activity generated due to the renovation of Zellers locations and offer Canadians a broader retail product offering. Come on, really? It would be nice to know what these stats are based on. Target stores are known to have a great deal more staff than Zellers stores. This could be a plus, having a staff person available to assist when needed, as well as enough staff to keep aisles clean and organized and clothes off the floor.
There are three likely outcomes. The store could continue to operate as Zellers, close for renovation into a Target, or just close.
Have you been to the mall lately? I can hardly imagine what the closure of Zellers, even a temporary one, will have on the level of mall traffic. Not good if your small business is currently renting mall space. That, compiled with tighter household spending in light of the depressed economic times, could make for a long couple of years (2013 and 2014 remember). If the economic situation worsens, perhaps the store closure could become extended or permanent.
If the Cobourg store is not to be renovated, then it’s business as usual. The allure of Wal-Mart, with the same low quality household merchandise and a brand new grocery section is hard to refuse.
Target Corp clearly needs the Canadian economy and compared to its U.S. homefront, a remarkably strong consumer demand, to prop up its shareholder return in order to compete with Wal-Mart. It plans to do this by offering high quality products at discounted prices and significantly increasing staff. Canadians will need to turn out in droves and turn their backs on Wal-Mart. That’s a tall order.
There is one clear winner. U.S. real estate developer Richard Baker paid roughly $1.1 billion to buy the entire HBC a few short years ago. To sell off just a portion of the business leases for $1.8 billion is a nice return. Is there any return on investment to loyal Canadian shoppers?