U.S. discounter Target Corp. is cannibalizing its core business after having launched its first Canadian stores in March.
Target has felt a sales pinch at its outlets in Buffalo, Detroit and Seattle, among others, since its first foray outside the U.S., Tony Fisher, president of Target Canada, said on Tuesday. “We have seen an impact,” Mr. Fisher said after an address to the Retail Council of Canada’s annual conference. “For us, it’s too early to tell what the long-term trend will be.”
Target has grappled with its share of challenges since it rolled out its first 48 stores in Ontario and Western provinces, including shelves emptied by heavy demand – an enviable problem for a merchant – and consumer disappointment that some of its prices are higher here than in the U.S.
But the chain, which plans to open 124 stores in Canada by the end of this year, is under pressure to ensure that those stores won’t significantly hurt its business south of the border.
In its first quarter, which ended May 4, the company generated sales of $86-million in Canada from 24 stores – many of them open for just a a month or two – with sales stronger than expected in the first weeks as consumers rushed to try out the new entrants.
In an interview, Mr. Fisher said that the retailer expects that Target’s share of its apparel and home goods sales will each be “a couple” of percentage points higher here than in its U.S. stores as it faces less competition in those categories in Canada.
But while shoppers have been drawn to Target’s much-hyped apparel and home decor offerings, they have been harder to lure down its grocery and household goods aisles. Those are the types of everyday purchases that tend to bring shoppers into stores more frequently. Business in Target’s pharmacies is also relatively light so far.
Mr. Fisher said despite fewer Canadians shopping at some of its U.S. stores, consumers are still cross-border shopping at Target. “But we’re also seeing people really respond to our brand here.”
Canadians who have scaled back their shopping at U.S. Target outlets are making a “small impact” on Target’s business, he said. Affected stores include some in Florida and Arizona, which are common destinations for Canadians.
Canadians also are heading to U.S. Target stores for items that are unavailable in Canada, such as Jif peanut butter and Cheez-It crackers, he said. When he lived in the U.S., “my wife used to buy Jif peanut butter and she still says, ‘Why don’t you carry Jif peanut butter?’” he added with a smile. “I have personal feedback.”
Overall, business in Target’s pharmacies here is relatively light as the company tries to raise awareness of its franchised drugstores, he said. “We have to grow that business … We’re still training guests [customers] on how to come to Target for one-stop shopping.”
And sales of items such as groceries, household goods, socks and T-shirts have been weaker – the kind of merchandise that attracts consumers to stores more often but also is stocked “at just about every other retailer,” he said. Among those goods, “we would expect to have a longer ramp-up period.”
Even so, Target hasn’t made any major adjustments to its offerings or pricing since launching here in March, not wanting to make any “knee-jerk” reactions so early in the game, he said.
It’s working to ensure shelves are replenished, although forecasting demand in a new market is difficult. “We’re responding as fast as we can. There are going to be times when we’re not responding as fast as possible.”
Keeping higher-margin fashion and home lines in stock can be tough because of one-year lead times needed for purchasing many of those overseas supplies, he said. “When you sell a 16-week program in an eight-week time frame, you’re going to have empty shelves in the store.”