Market Overview

Target Facing Problems Across Canada

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Target Facing Problems Across Canada

Target (NYSE: TGT) has received its fair share of attention over the past few weeks because of its data breach that affected over 70 million American customers.

Flying a bit under the radar is the company's recent expansion to Canada, which is off to a bumpy start.

Target opened its first Canadian stores in spring 2013 and completed its planned 124 store openings across the country by the end of the year.

Excitement quickly turned into irritation and frustration, as many customers began complaining of the higher prices compared to the American stores, as well empty shelves and low stocking of products.

Target's CEO admitted that the company is losing the battle for Canadian consumers.

"We gave all of our competitors [in Canada] a two-year notice. So, in that last two years, they've upped their game. They've cleaned up their stores. They've added more service. They've lowered their prices,” Target CEO Gregg Steinhafel said in an interview on CNBC. “They got better. We're going to have to get better.”

Related: Target Previously Trashed This Security Technology That It Now Embraces

A Shopper's Perspective

"I was really excited for Target to open and I no longer have to cross the border to New York," a Montreal resident said, who asked not to be identified. "But now, even after the downtown location has been opened for a few months, shelves are empty, supplies are low and there are no customers. Plattsburgh is just an hour drive away and its a better shopping experience. They are always fully stocked items that noticeably cheaper.

"My fiancee doesn't even complain about shopping because with the money we save, it pretty much covers a lunch at Buffalo Wild Wings. More importantly, the Target south of the border doesn't resemble a ghost town."

Plattsburgh, New York, is approximately a one-hour drive from Montreal and is a popular destination for thousands of Quebecers who shop across the border.

"The last three times I shopped at the Target here, there were long line-ups and many of the self-check out registers were broken," the woman said. "There were so many employees on the sales floor, but so few at the cash registers. Many customers got fed up and left the store leaving behind a full basket of items. This kind of service is unheard of especially for a downtown location."

Analyst Weighs In

Brian Sozzi, analyst at Belus Capital Research, has published an article titled "These are 23 new OMG! Photos from the Empty Target Canada," which you can preview on the slideshow located at the top and bottom of this article.

"The fundamental issues, from keeping shelves stocked (process and tech related) to articulating a low price message to skeptical Canadian customers, appears to be getting worse," Sozzi wrote. "One almost is overcome with this creepy feeling (at least we are given our close tracking of the situation) that Target will go the way of many U.S. brands that ventured into Canadian retailing…extinct."

Sozzi believes that Target Canada's objective of achieving $6 billion in annual sales by 2017 is unrealistic. "Unless Target begins growing same-store sales from its initial round of store openings, which we will be able to tell by the second half of 2014, the sales goal will not be attained," he wrote in an e-mail to Benzinga. "I believe the sales goal is too high. More importantly, you must have concern on the profit profile of the business."

One of the issues effecting Target Canada's goal is the simple fact that the shopping experience is too pricey. Travelling to the U.S. on day trips could prove to be a better overall value proposition, even when considering the time and dollar expense, according to Sozzi.

Because Target Canada was pitched aggressively to investors, the company has "disappointed those same investors, severely, in 2013." Sozzi wrote that the company must now "prove itself" and show that it is able to compete with Wal-Mart in an environment where Sears is closing stores and Big Lots just exited the country.

Sozzi noted that other U.S. based retailers eyeing the Canadian market operate in completely different categories. "Nordstrom, Whole Foods and Saks lead with product to higher income consumers, and have a richer margin that could be trimmed if need be to move merchandise."

Posted-In: Belus Capital Research Brian SozziAnalyst Color CNBC News Retail Sales Analyst Ratings Media Best of Benzinga

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