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Econowatch: Canada takes the blame for Target’s tough quarter

A scorecard on the state of the economy in North America and beyond


 

(Bill Sikes/AP Photo)

How does that South Park ditty go? Blame Canada. They’re singing that down in the head offices of Target Corp. in Minneapolis. Eight months after the retail giant set its sights north of the 49th with its first batch of stores, the True North has truly hammered the company’s bottom line—its third-quarter earnings were shaved almost in half to $341 million on sales of $17.3 billion, with executives blaming high costs at its Canadian stores and what the company considers “constrained” consumer spending here.

There’s no question Target faced steep costs in its northern foray. Expanding from zero to 124 stores in under a year was never going to come cheap. But it says a lot about the company’s checkered Canadian rollout that its top brass seem taken aback by shoppers’ stinginess.

Maybe they can be forgiven. Canada stood out as one of the first countries to emerge from the recession. We didn’t seem to suffer all that greatly, relatively speaking, either. American economic think tanks sung Canada’s praises for our more prudent ways. And with so many Canadians flocking across the border for deals—at one point some American shoppers in Bellingham, Wash., lobbied for their local Costco to post American-only hours to avoid the Canadian crowds—Canada looked incredibly appealing to U.S. retail bosses. So began the great march north.

Target has admitted to missteps. After giddily anticipating the chain’s arrival, consumers have found the offering at its stores lacking. It’s struggled with inventory issues, while its prices failed to impress those hoping for dirt-cheap U.S.-style deals. But weaknesses have started to show through the facade of the resilient Canadian consumer. In fact, they’re stretched dangerously thin. A recent RBC poll found the average level of personal debt in Canada jumped 21 per cent this year to $15,910. That doesn’t include mortgage debt, which has reached historic highs. At the same time a lacklustre job market in most parts of the country is making it harder for workers to get ahead.

Target has said it’s here for the long run. That’s good. It’s going to take a long time before consumers are in any real position to open their wallets.

Good News

Bombardier has struck a tentative deal to sell five of its new CSeries jets to Iraqi Airways. That brings the total number of firm orders for the plane to 177.

The U.S. government shutdown last month doesn’t seem to have had a lasting impact on small American businesses, according to the WSJ Vistage confidence index. After declining last month to a nine-month low, it’s back in positive territory.

U.S. consumers spent 0.4 per cent more in October, particularly on cars, clothing and furniture. The extra spending helped push retail sales to their highest level in four months.

An index that tracks the number of jobs being advertised online by Canadian companies rose 5.2 per cent in September, the Conference Board of Canada says. That makes up for most of the declines seen since June.

Home sales in Canada fell 3.2 per cent in October from the month before. While not usually a positive sign, analysts say the pullback means less likelihood of a hard landing for the housing market.

North Americans snapped up more than one million Sony PS4 game consoles within 24 hours of launch. At $399 each ($1,000 on eBay), gamers are clearly doing their part to lift the economy out of its funk.

Warren Buffett is betting on Alberta’s oil sands. He has a $3.45-billion stake in Exxon Mobil, which controls Calgary’s Imperial Oil, and a $500-million stake in Suncor Energy.

Bad News

Beijing’s efforts to let the air out of the country’s real estate bubble are failing, with prices at record highs in 70 Chinese cities last month. A crash in the world’s most important emerging market threatens to wheel the global economy back into the emergency ward.

The number of international visitors to Canada has fallen 20 per cent since 2000, according to Deloitte. Not only does that mean less money for hotels, restaurants and attractions, but fewer business connections are being made.

The axe continues to swing at troubled smartphone- maker BlackBerry. It’s laying off another 250 employees at its headquarters in Waterloo, Ont., part of an overall plan to cut 4,500 jobs.

Nearly half of all Canadian homeowners expect to still be in debt when they hit retirement, a survey from Manulife shows. Yet another sign that today’s cheap interest rates threaten to create tomorrow’s financial perils.

U.S. big-box stores are slashing prices on everything from TVs to toys, in anticipation of a shorter and, potentially, slower holiday shopping season. That’s good for consumers, but bad for corporate profits.

Ketchup giant Heinz plans to close its plant in Leamington, Ont., after more than a century. More than 740 jobs will be lost between now and June, when the last tomato is juiced.

The value of Bitcoins surged to $900 in the wake of U.S. Fed chairman Ben Bernanke’s musings that virtual currencies could be a useful way to conduct transactions in the future. But then they promptly plunged to $600, proving why they’re not so useful today.

Stock Signs

  • Maple Leaf Foods elicited several international bids for its $1.5-billion Canada Bread unit, which makes brands like Dempster’s and Olivieri. The company’s stock hit a six-year high this year as it restructured operations, selling units and closing plants.
  • Edmonton-based AutoCanada, the country’s largest publicly traded auto dealership, has seen its shares nearly double this year, as it announced record profits in the third quarter, citing booming vehicle sales to Alberta’s oil workers.
  • Shares of Sears Canada rose more than seven per cent last week after the company announced it would pay out $509 million in dividends, or $5 a share, injecting cash into Sears’ U.S. parent. The struggling retailer is in the midst of a real estate sell-off, including closing its flagship store in downtown Toronto to stem losses.
  • Barrick Gold’s bondholders have seen the metal industry’s highest returns, as the company works to slash its nearly $15-billion debt. Barrick bonds have returned 2.27 per cent since the start of the month after the company said it would issue $3 billion in new shares and suspend construction on its Pascua-Lama mine in Latin America.

Stock Signs brought to you by Questrade


 

Econowatch: Canada takes the blame for Target’s tough quarter

  1. Are there any retail stores doing well?

    Perhaps you’d better look online.

  2. I think the Target executives are in denial about botching their own entry into Canada. They have taken forever to open stores that other than the signs are pretty much like the Zellers they replaced.

    More importantly, a lot of Canadians are miffed that the prices are much higher than the Target stores they have shopped in previously in border cities in the US. To them, the brand promise of slightly upscale goods at low prices hasn’t been fulfilled. Target had better figure out they need to fulfill that promise for that target market that was awaiting their arrival or their customers will just go to Walmart.

  3. Don’t blame Canadians because Target was too stupid to lure customers in with good prices at least in the beginning and thought they could gouge us right off the bat. It’s their own damned fault.

  4. I made my first visit to the Target store that opened in my town and I left without buying anything.
    If you are going to advertise yourself as the “classy” version of Walmart….you should at least carry as much inventory as does the big W.
    It was clear, that the TARGET in my area was not ready for prime time, as their shelves were disorganized (kids toys on same shelf as tampons and canned goods??) and the other goods were scattered across numerous isles in an apparent random pattern.
    If you want customers…….at least have a wide selection of items at good prices. The store I was in had no selection, no apparent order, and the Wal-Mart quality goods carried SEARS prices.
    I won’t be back.
    (PS TARGET reps….if you are going to have a Wal-mart style greeter, the least you can do is have them put on clean clothes and try some deodorant. The guy at the store I was in looked like a homeless man who had just found a nametag)

    • A very different-sounding Target than the one that recently opened near me. They gutted and revamped the old Zellers to the point that the two look nothing the same. And the staff present well and seem very helpful and knowledgeable – much more so than at my local Walmart.

      Merchandise looks better – and better presented – than Walmart, but you’re right about the prices being more like Sears. And a wider selection would definitely help. I haven’t bought much there either.

      Target: There’s a reason Zellers was available. If you choose their model and just give it a fresh coat of paint – or if you chase after Sears – success isn’t heading your way.

  5. Another US store offering Made in China junks for high prices…why are you surprised?

  6. To my disappointment (not great disappointment)Target Canada doesn’t have a cafeteria in addition to the Star Bucks like you’ll find at Target or most Target stores in the States.I say that because the US Target cafeterias serve popcorn and that ain’t available among Canadian Target outlets.Other disappointments I have with my local Target store is that to some extent the store’s size is what I call diminished in comparison to its US counterparts and it appears to not have much variety of goods compared to its US counterparts in fact from the looks of things in my local Target store very few watches are in stock compared to when this location was previously a Zellers store.Finally and in all fairness despite my slight disappointments with Canadian Target outlets I somewhat dread a possibility that Target Canada or this location can go “belly up” (so to speak.)

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