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Target should leave Canada, operations unfixable: Analyst

Tags: Retail, Target

It appears Target Canada is struggling to gain traction with holiday shoppers. A walkthrough of several Target locations in Hamilton and Toronto by BNN.ca staff over the past two weeks shows minimal lineups - and foot traffic that is often less than half of Wal-Mart locations in the same neighbourhood.

New York-based Wolfe Research says Target’s botched rollout of its 133 Canadian stores has left it unable to compete with Loblaws, Wal-Mart and the allure of cross-border shopping. The research firm is now calling for Target to shut its Canadian operations down.

“It been a complete disaster,” Scott Mushkin, managing director of Wolfe Research, tells BNN. “Their sales per square foot [in Canada] are $140 and we think break even in $250.”

Mushkin says stemming the losses in Canada would require Target to increase same store sales by 21 percent per year for the next three years.

“It’s not something they can recover from.”

Target lost $211 million US in Canada before interest and taxes last quarter, despite $479 million in sales. The retailer has been aggressively discounting to lure shoppers but the approach seems to have cannibalized existing sales and crushed margins. Target's gross margin in Canada is 19.5 percent compared to 29.5 percent in the United States.

Wolfe Research has initiated coverage of Target with an ‘outperform’ rating and an $85 target price. The rating is based entirely on a recovery in U.S. consumer spending and assumes the company abandons its Canadian expansion strategy.

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