In January 2015 Target Canada announced it had filed for bankruptcy court protection and would be closing all 133 stores in the country. The U.S. corporation opened its Canadian stores in 2013 but barely lasted two years before it folded up shop, leaving over 17,000 Canadians out of a job. To put that number in perspective consider Canada’s total job loss in December 2014 was 3,500 and total net jobs gained on the year was approximately 80,000.
Many of these jobs were the lifeline for certain Canadian families who will now be put in a difficult spot of uncertainty. Target Canada will be providing 16 weeks of pay to eligible employees which will end in May 2015.
Target’s entrance into Canada was heavily anticipated by consumers who felt their discount prayers had finally been answered – so what went wrong?
It’s All About the Borden’s, Baby/Unfortunately
At the end of the day it comes down to money. The Canadian Target operations couldn’t turn over a profit and that wasn’t likely to change any time soon. Consider the two 2013 budget figures for the households below:
Household B did very well for itself and had $5k saved at the end of the year. Obviously having a larger salary than Household A helped, but it still managed to easily keep its head well above water after paying the bills. Household A, on the other hand, had a low salary and could barely pay the mortgage, let alone day-to-day living expenses. As a result Household A had was unable to pay a good portion of its bills.
Household A figures are Target Canada’s results for 2013 while House B figures are Target U.S. results. Salary is total sales, living expenses represents merchandise cost and fixed expenses represent salaries, rent and other overheads. Oh, and throw 6 zeros behind those figures – i.e. the Canadian stores lost $941 million in 2013. It’s not hard to determine that there were serious financial performance issues with the Canadian stores.
Target has openly admitted it has failed to deliver on expectations of the Canadian market. Canadian consumers were heavily underwhelmed by products and deals within the stores. Target Canada had average sales of approximately $9M per store in 2013. Compare that to its competitor, Walmart International, which averaged $22M per store and it’s not difficult to see the lack of enthusiasm consumers had for Target Canada.
Target is a publically listed corporation, meaning that it is technically owned by the shareholders – people like you and I that have purchased its shares. A group of rich people, known as the board of directors of Target, have a duty to the shareholders to act in their best interests. The board of directors decided Target Canada was a bad investment and rather than throw a lifeline to the Target Canada stores (via additional money) it is letting the ship sink and moving on. I can’t blame them, but try explaining that to 17,000 people out of a job.
Since the closing announcement on January 15, 2015 Target stock has increased 0.35% (see chart below) – part of which is partially due to the market agreeing with the move to cease operations in Canada. At the end of the day, in terms of relative loss, the hardest hit is for the employees.
(Courtesy the Globe and Mail, January 23, 2015)by