Target’s arrival to impact rivals
TORONTO—Target’s arrival in Canada will take a bite out of the sales of several key rivals, according to a new report, though many of those named have said they’re not fazed by new competitive pressure from the American retail giant.
In a report assessing the impact of Target’s arrival next year, Barclays Capital said yesterday that Wal-Mart, Sears Canada, Old Navy, Loblaw’s Joe Fresh brand, and Canadian Tire are the retailers most at risk.
It will begin opening the first of between 125 and 135 stores in March and April at locations once owned by Canadian retailer Zellers.
“Target’s arrival marks the addition of another best-in-class global operator entering the Canadian market,” the report said.
“We expect Target to focus on what they are most known for when they arrive: apparel and house goods.
“Over time, the greatest risk to established retailers is the permanent change in customer traffic patterns that Target could induce,” it noted.
However, the investment firm also said other retailers that don’t overlap in their offerings—like dollar stores and higher-end retail stores—may benefit from the increased traffic generated by the new Target stores.
Sears Canada is the most at risk of the general retailers, with significant overlap in its offerings and 37 percent of its locations less than a kilometre away from a Target location, the report said.
Sears Canada already has been struggling to compete, and is revamping many of its locations and slashing prices to contend with lagging sales.
The retailer has announced the closure of four prime store locations in three cities—Vancouver, Calgary, and Ottawa.
But the arrival also will eat into Wal-Mart’s business, the report said, noting that Target’s chief rival “may implement several ‘mitigation and offset’ strategies to minimize Target’s net impact on their business.”
Wal-Mat Canada, a subsidiary of the world’s biggest retailer, has said it is confident it’s prepared for Target’s arrival.
As part of the plan, it will lower the prices of more items to about $1 as it also answers to the expansion by Canadian dollar store operator Dollarama Inc.
The retailer has never competed against Target Corp. outside its home base in the United States, which means Canadians could react to the new entrant in ways Wal-Mart hasn’t anticipated.
Canadian Tire is expected to take a hit, but Barclays analyst Jim Durran noted that when Wal-Mart first launched in Canada, Canadian Tire was able to recover by the following year.
“There is no doubt that Canadian Tire will suffer some sales erosion to Target, particularly in Target’s perceived ‘go to’ categories such as housewares, apparel, and seasonal merchandise,” the report said.
However, Barclays noted that Canadian Tire’s most loyal customers generate a majority of its sales and just 30 percent of the Canadian retailer’s stores will be within five kilometres of a Target.
Canadian Tire Corp. is working aggressively to carve out a bigger share of the market before Target arrives.
It has unveiled a new automotive-centric store format in a strategy aimed at improving customer experience among those shopping for products that helped make the company a household name.
Meanwhile, the report calls discount retailer Dollarama Inc. a special case among retailers as they offer something different from Target.
Barclays said it believes Dollarama will “benefit when a Target opens nearby.”
Dollarama Inc. is expanding faster than initially planned this year by increasing the number of new store openings to take advantage of a mall construction boom in Canada.
Chief executive Larry Rossy has said the chain could be helped by the arrival.
“I’m looking forward to it,” he said. “I think that they’re going to bring traffic where we’re situated close to the Target stores.”
Rossy added he doesn’t believe the U.S. chain, which he said was a notch higher than Wal-Mart, will “trade down” by selling low-price products that fill Dollarama’s shelves.