Target plans to open stores in Canada

In its first foray outside U.S. borders, Target Corp. is catapulting into the backyard of our neighbor to the north.

The Minneapolis-based retailer said on Thursday that it plans to open 100 to 150 stores in Canada over a two-year period starting in 2013.

Target for years avoided international expansion even as its competitors did. Now, it will leap swiftly into the market by moving into existing stores of a struggling Canadian chain.

In a $1.85 billion deal, Target has acquired leasing interests in up to 220 stores in Canada from discount retailer Zellers Inc., a subsidiary of the Hudson’s Bay Co. Zellers will lease the stores back and keep its name on the stores for a period of time.

”Target has always been opportunistic about real estate,” said Jeff Klinefelter, an analyst at Piper Jaffray in Minneapolis, noting that the retailer picked up 35 Montgomery Ward locations in 2001 and opened 30 Targets. “It’s a way to accelerate their share in that market and get established very quickly.”

It is Target’s boldest growth push since the start of the recession, when it put the brakes on what had been a 100-store-a-year pace. Last year, Target opened just 10 stores and expects to open 21 this year. Target currently operates 1,752 stores in 49 states.

Zellers is Canada’s second-largest mass-merchandise retailer, with more than 270 stores from coast to coast. Walter P. Zeller founded the company in 1931 as “stores for thrifty Canadians.”

 Zellers has fallen on hard times in recent years as it has come under pressure from Wal-mart, Costco and household merchandiser Canadian Tire, said David Soberman, a marketing professor at the University of Toronto’s Rotman School of Management.

“When you go into a Zellers store, it still has the atmosphere of a discounter from the last century,” he said. “... They don’t have the modern feel of a Target in the U.S. or many Wal-Mart stores.”

Other U.S. retailers also have their sights on Canada, where the retail market is about 20 percent the size of the United States but has proven to be much more resilient during the global financial crisis.

The parent company of discount chain Marshalls plans to open several stores in Canada next spring. Menomonee Falls, Wis.-based Kohls, J. Crew and Limited Brands Inc.’s Victoria’s Secret are scouting as well.

Target will spend time learning the Canadian market and prioritizing its store openings, said spokeswoman Lena Michaud. Most Zellers are located in traditional shopping malls and are
much smaller than suburban-style U.S. Target stores.

The company will spend about $1 billion on renovations and updates on stores, which may carry food and consumables but not full-scale grocery stores found in SuperTargets.

Target is in a trademark dispute with Toronto fashion merchant Isaac Benitah, who has opened stores named Target that use the same red, sans-serif lettering. Michaud declined to comment on the dispute’s status, but said, “There’s nothing that will prevent Target from using the same brand elements in Canada as we do here.”

Wall Street had a muted reaction to the news. Shares were essentially flat at $55.42, down 0.05 percent.