What do Vince Ferragamo and Target have in common? So far, absolutely nothing. But several Canadian retailers are hoping that Target’s foray into Canadian territory will be as short lived as Ferragamo’swas.
Target is planning to open its first stores outside the US in 2013. The first of projected 125-135 stores will open in March and April at locations which were previously owned by the now-closed Canadian retailer, Zellers. Zellers Inc.'s parent company - Hudson's Bay Co.- sold leases on the discount stores to Target Corp. for $1.83 billion. HBC is now one of the retailers facing competition from the American giant as it spreads across Canada. Along with Shoppers Drug Mart and Loblaw Companies Ltd., Hudson’s Bay Co. has announced major job cuts. Although at first this might seem like cost cutting in the face of imminent competition from Target, analysts suggest that the weak economy may be a more likely reason.
In fact, HBC is not in direct competition with Target, but there are a number of retailers operating in Canada whose merchandise overlaps with that of Target. Walmart, Sears Canada, and Old Navy are on the list of vulnerable international players according to a report by Barclays Capital. Loblaw's Joe Fresh brand and Canadian Tire are the Canadian retailers most at risk.
The Barclays Capital report concluded that, “Over time the greatest risk to established retailers is the permanent change in customer traffic patterns that Target could induce." On the other hand, those other retailers whose offerings don’t overlap, such as the dollar stores and the more up-scale stores, may in fact benefit from increased traffic generated by the presence of new Target stores in the vicinity.
Sears Canada, already undergoing big changes in order to stay competitive, may be the retailer most at risk. Walmart, too, will be affected by the as yet unknown reaction of Canadians to a new multi-purpose store like Target. Sears, Target and Walmart offer a similar range of products, in a similar price range. Walmart has announced that it is dropping the price of select items to just $1, but this may be more a reaction to the expansion of Dollarama than preparing for the arrival of Target.
Vince Ferragamo left a promising career in the US to play for the Montreal Alouettes of the Canadian Football League in 1981. He was signed for a huge contract (for the time). However, Ferragamo did not do well in Montreal. He had difficulty adjusting to the very different style of Canadian football. He lasted just one season.
How Target will fare in the new and untried Canadian market remains to be seen. Will they adapt to the new environment, or will they become the Vince Ferragamo of the retail world?