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The Target at the Square One shopping mall in Mississauga. (Fred Lum/The Globe and Mail)
The Target at the Square One shopping mall in Mississauga. (Fred Lum/The Globe and Mail)

The Target invasion: How pricing will be key to Canadian success Add to ...

At the same time, in its U.S. market, prices at Wal-Mart and Target are almost at price parity for the some for those items, with Wal-Mart’s prices just 0.5 per cent lower, the survey found.

Retailers here argue that their prices are steeper than those in the U.S. because of higher tariffs, suppliers’ “country” charges and fewer economies of scales in a more scattered and smaller population.

Richard Baker, chief executive officer of Hudson’s Bay Co., said his costs, including labour, are about 35 per cent higher in Canada than in the U.S., where he runs the Lord & Taylor department store chain.

“People understand it’s more expensive to shop in Canada because of the tax situation and cost structure and the way the market is set up,” he said.

Higher prices may be acceptable for the Bay. But they are likely to test the loyalties of Target customers.

Jodi Moss, a Toronto resident and Target fan who came to its store near Buffalo with her daughter on Friday, said she would not tolerate much of a price hike at Target stores at home. She plans to head to Target once it opens in Canada, but would pay just $2 or $3 more for an item than in the U.S. “Maybe,” she said. “But that’s it.”

Pricing expert Augustin Manchon of consultancy Manchon & Co. predicted Target will be able to get away with some higher prices in Canada than in the U.S. Most consumers aren’t constantly rushing south of the border to shop for the types of things they buy regularly at a discounter, such as toothpaste and t-shirts.

“The price doesn’t have to be the U.S. price – it will not be,” he said. “They only have to be reasonable prices.”

Still, even though some costs are higher in this country, many retailers have been complacent about upgrading their systems to be able to improve their price-monitoring tools. “A lot of Canadian retailers still believe they can get away with limited investments.”

Jeff Doucette, general manager of researcher Field Agent, said he expects Target’s pricing to be similar on both sides of the border on its own label products such as Michael Graves. “Margins are already very healthy in these product lines and boosting them up in Canada takes an unnecessary risk in irking the Canadian consumer as did J. Crew.”

Mr. Fisher said Target is banking on its own weekly price checks to ensure it remains at par with the lowest-cost retailers in Canada such as Wal-Mart – although not necessarily at par with its U.S. stores.

It is also counting on its popular REDcard rewards program that provides a flat 5 per cent discount for customers using the retailer’s debit or credit card, he said.

“We’re very keenly focused on price,” Mr. Fisher said. “We’ve learned a lot on why there might be cost differentials compared to what we’ve seen in the U.S. ...

“Yes, it’s ‘pay less,’ which is all about those competitive prices. You can also expect a brighter store, a cleaner store, wide aisles, trend-right merchandise, unique designer partnerships you can’t get anywhere else ... That’s why we think we can differentiate ourselves, because that experience doesn’t currently exist in Canada.”

Target’s research has found that Canadians’ biggest fear is that the retailer is going to change its strategy for this country – dumb it down, so to speak. “People are concerned about Target Canada Lite. I think of it as Target Canada Plus ... We want to bring the exact same brand to Canada and the expectations are quite high.”

He thinks the stores here will draw customers beyond their first curiosity trip partly because they will have the best features of the U.S. stores, such as white – rather than almond – display gondolas for food that give the products a brighter and fresher look, he said.

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