Target Receives Chilly Reception In Canada
By Sam Lewis
Retail giant’s Q3 earnings hurt by reluctant Canadian shoppers
Minneapolis-based Target released its 2013 third-quarter earnings report on Thursday, Nov 21. The retailer found that its recent expansion to Canada has not been embraced by shoppers north of the border, partially leading to declines in profit.
During the quarter ending Nov. 2, Target is reporting a two percent rise in revenue, up to $17.26 billion from 2012’s $16.93 billion. The company is claiming earnings of $341 million for quarter, down 47 percent from last year’s Q3 earnings of $637 million. Same store sales in the U.S. rose nearly one percent for Target, meeting the low end of its expectations. Subsequently, Target has lowered its year-end guidance.
Target launched its first Canadian stores in early 2013, which were met with great anticipation. However, that eagerness faded after Canadian shoppers complained of high prices and a lack of in-store inventory. The reluctance of Canada to embrace America’s second-largest discount retailer led to the drop in Q3 profits. In the earnings conference call, CEO Gregg Steinhafel says gross margins in Canada were lower than expected while working to eliminate inventory excess.
Still, Steinhafel sees potential for Target in Canada. “While our initial sales and profit from Canada have not met our expectations, we remain enthusiastic about the Canadian market and confident in the long-term success of the stores,” Steinhafel tells analysts. Target will open two more stores in Canada this year, on top of the 23 opened in the 3rd quarter, on pace to meet its goal of 124 Canadian Target stores in 2013. Additionally, Target will be refining its Canadian stores’ inventory and refining its operations up north in 2014 and beyond. “As we gain experience in operating Canadian stores and accumulate sales histories by item by location, inventory flow and allocation will become much more reliable and accurate, setting the stage for improved sales and operating efficiency in 2014,” Steinhafel says.
The company has also launched several initiatives to improve the customer experience as the holiday shopping season approaches. Target’s U.S. stores received expansion in the company’s Buy Online, Pick-Up in Store (BOPS) on Nov 1, allowing online orders to be picked up at brick-and-mortar locations. Target will also be engaging in an ad campaign it is calling “Cyber Week.” Target will air ads Dec 1 to 3 informing shoppers of its Cyber Monday deals that will last all of December’s first week. Target believes social media, particularly Pinterest, will be a major player in the success of its holiday ad campaign. Target partnered with David Stark to create a party planning resource called “Best. Party. Ever.” Launched in mid-November, the program provides shoppers with ideas and products to ease their party planning. As far as what target expects this holiday shopping season, “We're entering (it) with a cautious optimism,” says Steinhafel. “This will be the most digitally enabled holiday campaign in our history with an enhanced presence in the channels where we know our guests are most engaged.”
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