Grocer Loblaw Cos. Ltd. borrowed partly from the fashion playbook of U.S. cheap-chic discounter Target Corp. in developing its Joe Fresh Style line. Now, almost five years later, Loblaw feels the pressure of Target preparing to set down roots in Canada, trumpeting its own low-cost styles.
Loblaw isn't alone among domestic players to face a potential Target squeeze. The Minneapolis-based discounter stands to take a big bite out of retailers' business when it arrives in Canada in 2013. Merchants ranging from discounters to apparel and home-goods specialists are among those at risk of losing sales to Target.
The U.S. chain has built a reputation of carrying stylish clothing and home decor items at affordable prices, including hot designer labels such as Stella McCartney. Retailers in Canada whose products overlap with those of Target will have to lower their costs and sharpen their style sense to take on the new competitor.
The advent of shifting retail dynamics follows Thursday's announcement of Target's $1.8-billion deal to buy leasehold rights of up to 220 Zellers discounter stores from Hudson's Bay Co. Target will spend more than $1-billion to convert 100 to 150 of them to its own banner within the next two to three years; it envisions 200-plus outlets within a decade.
The stakes are high because Target will generate at least $300 of sales per square foot within a few years of operating here, at least 50 per cent more than those at Zellers currently, according to estimates in a National Bank Financial report.
Target's annual sales in Canada could eventually reach $7.5-billion, compared with an estimated $4-billion now at Zellers, said James Durran, retail analyst at National. Among retailers most in jeopardy in the apparel category are Sears Canada Inc., Wal-Mart Canada Corp., Loblaw, Reitmans (Canada) Ltd. and Gap Inc.'s Old Navy chain, he said.
Target's rapid rollout could deny Loblaw's near-term goal of hitting $1-billion of annual Joe Fresh sales, he said.
"Joe Fresh has been our Target. [Loblaw is]going to have to use the next two years to really make it hard for Target," said Jim Danahy, managing principal at retail consultancy CustomerLAB.
Loblaw is dashing to bolster its Joe Fresh business. It opened its first standalone Joe Fresh store last fall, and plans 20 in the next couple of years. Last week, Twitter feeds were abuzz about plans to launch a Joe Fresh Style fashion store on Fifth Avenue in New York, which would be the brand's first U.S. foray. A Loblaw spokesman wouldn't comment.
Wal-Mart could also feel the pinch of Target's entry. Last year, Wal-Mart dropped most of its clothing lines to focus on its own George apparel. "Target has always been better at fashion than Wal-Mart," Mr. Danahy said.
Target's research suggests it will have a following when its launches in Canada. It found that 10 per cent of Canadians shop at Target and 70 per cent are familiar with its brand.
Vishal Shreedhar, retail analyst at UBS Investment Research, predicted that Target could capture $1.6-billion in incremental sales beyond Zellers' current revenue. He noted that 83 per cent of Canadians are within a 10-minute drive of a Zellers site.