Target looks to double sales
Retailer confident it has turned its early stumbles around
TORONTO —Despite posting vastly lower sales than it anticipated in Canada, Target Corp. expects its sales in this country to double this year over last — but it has a long way to go before hitting its longerterm forecast of $6 billion.
After stumbling out of the gate in this market and warning its vast customer data breach in December may dent future profits, Target executives nevertheless sounded a note of optimism for the fledgling Canadian unit.
“We are pleased that our early cycle Canadian stores have seen the most improvement, giving us confidence that we will continue to see continued improvement across all our Canadian stores in 2014,” chief executive Gregg Steinhafel said Wednesday on the mass merchant’s fourth-quarter conference call with analysts..
Since opening in Canada last March, Minneapolis-based Target has veered from merchandise stock-outs amid enthusiastic early customer demand, to overstocks while it grappled with unimpressed consumers who had expected its U.S. prices would follow it into Canada.
Target Canada’s sales of $623 million in the quarter ended Feb. 1 came in just below company expectations and the chain was able to reduce the glut of average inventory per store by about 30 per cent during the period, said CFO John Mulligan.
But notably, the company did not reiterate its expectations of $6 billion in sales and 80 cents in operating earnings by 2017 in Canada on the call.
“We didn’t provide updated long-range guidance today,” Tony Fisher, president of Target Canada, confirmed in an email. “I feel very optimistic about the significant improvements we have made, and will continue to make, to stabilize the business and drive sales.”
In 2014 the company will ramp up its Canadian marketing efforts to highlight a message of value and try to drive up sales in its so-called “frequency categories” — the breadand-butter household goods and staples that drive more frequent visits to a general merchant.
But it could still be a bumpy road ahead for the retailer, which battles the well-known and ubiquitous presences of Walmart and Canadian Tire in this country, not to mention a powerful stable of homegrown grocery retailers compared with the U.S., including a Loblaw Cos. newly enlarged by its purchase of pharmacy retailer Shoppers Drug Mart.
“I would be surprised if Target discards the $6 billion (Canadian sales goal) figure, because of the impact that would have on company morale and the stock market,” said Ken Wong, marketing professor at Queen’s University school of business.
“Beefing up the frequency categories is critical, but it still comes down to how to correct the (consumer) perception that Target Canada is going to be the same as Target U.S. Value is a good message, but everybody promises value. They are never going to have U.S. prices in Canada, so somehow thy have to communicate that Target Canada is its own experience and that while it is not the same as the U.S. experience, it is still special.”
Mulligan said Target expects Canada’s 2014 sales to double those of 2013: $1.3 billion at its 124 stores, which were open on average for just over half a year.
In the fourth quarter, Target Canada generated an operating loss of $329 million, while the company’s gross margin rate of 4.4 per cent reflected its efforts to clear out excess inventory.