* Target to open across Canada starting next spring
* Grocery seen at less risk than apparel, general
* Hudson's Bay, Sears Canada may both be vulnerable
* Beauty offerings could challenge Shoppers Drug Mart
By Allison Martell
TORONTO, Dec 9 Canadian retailers of all stripes
are bracing for the day next spring when Target Corp
unlocks the doors of its first stores north of the border, but
its instant competitive heft probably won't weigh on all retail
Sears Canada Inc and Hudson's Bay Co - two
entrenched department store operators - may have the most to
fear from the No. 2 U.S. discounter, retail experts say. Their
shares may be most vulnerable.
HBC, which went public in November, has traded below its
C$17 offer price since its first trading day, partly because of
concerns that its turnaround drive might stall once Target
By contrast, Loblaw Cos Ltd and Metro Inc,
mainly grocers by trade, face a lesser threat from Target, and
their shares may hold up better.
That's not to say any retailer can afford to ignore Target.
The company has "proven its success in the U.S. The consumer
landscape in Canada ... isn't all that different," said Craig
Fehr, Canadian market strategist at Edward Jones in Missouri.
"It is going to have a meaningful impact."
Target is arriving at a time when most of the retail sector
faces sluggish growth, and many shoppers can't wait for the
Thanks to cross-border shopping trips, Target is already
well known in much of Canada. KubasPrimedia, a Toronto market
research firm, surveyed Canadians last spring and found that 43
percent had already shopped at Target south of the border.
Thanks to Target's "cheap chic" strategy, the retailer's
entry may be felt across the price spectrum.
It competes with Wal-Mart Stores Inc on basic goods
such as cleaning supplies, but also offers unique clothing and
housewares. Target does not need to price match on those trendy
items, and that drives traffic, sales and margins.
A recent report from Kantar Retail concluded that Hudson's
Bay is particularly exposed, based on how many of its customers
plan to shop at Target.
Sears, majority-owned by Sears Holdings Corp,
typically offers lower prices than HBC, closer to Target's
discount profile, and the chain is already reeling from steep
sales declines in established stores. Its shares have fallen
almost 15 percent over the last month.
GROCERS BETTER OFF
Thanks to Wal-Mart's big push into the sector, Canada's
grocery market is already very competitive.
Stewart Samuel, senior retail analyst at IGD, a research
firm specializing in food and grocery, sees Target's Canadian
stores offering a smaller food selection than its U.S. outlets,
given that its Canadian stores will be smaller than typical
Target U.S. stores.
Samuel believes the Canadian outlets may end up resembling
the chain's downsized CityTarget stores, which dedicate less
space to basic groceries.
Even if grocers are hit, Empire Co Ltd's Sobeys
might have bought itself some protection with its deal to supply
groceries to Target.
Beyond department stores and grocers, Target's impact is
Edward Jones' Fehr thinks Canadian Tire Corp Ltd,
which sells a combination of auto parts, housewares, apparel and
sporting goods across several banners, is particularly
vulnerable, but Paul Taylor, chief investment officer of
fundamental equities at BMO Asset Management Inc, says it is
insulated by its auto parts and sporting goods segments.
Then there is Shoppers Drug Mart Corp, Canada's largest
drugstore chain, whose shares are up about 2 percent this year.
Tight rules on prescription drug prices make it tough to
compete on price in Canada, said Matthew Coffina, a Morningstar
analyst focused on pharmacy: "Pharmacies compete much more on
Coffina sees some impact on Shoppers' sales of
over-the-counter medications and beauty products, one of
Target's strengths, but analysts in general are much more
concerned about the impact on Shoppers of new government
regulations on generic drugs than about Target..
Taylor believes Target's impact is already priced into the
market, given that investors and retailers have had plenty of
time to prepare. Target announced its store locations months
"The real question will be execution, and that we'll have to
wait and see," said Taylor, whose firm owns Loblaw and dollar
store chain Dollarama Inc, but not Sears or HBC.
And if sorting through winners and losers seems too risky,
investors can always follow Taylor's lead on one point - his
firm opted to buy a stake in Target itself.