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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 ...

The construction crews are finishing their work and the signature red-and-white bull’s-eye has been installed outside two dozen stores. Target Corp. is almost ready for its Canadian debut, the most anticipated arrival of a foreign retailer in a generation.

Within weeks, the U.S. discounter will fling open the doors on its first Canadian outlets. By year-end, it will have taken over and fully remodelled 124 former Zellers stores, in some cases bringing new life to drab shopping centres. The company’s marketing machine is gearing up: This week, it used Facebook to give Target fans a sneak peek inside a test store in Guelph, Ont. In the retailing business and in social media, there is growing buzz about the chain that goes by the promotional slogan, “Expect more. Pay less.”

But that tagline speaks to a big risk for Target in this country. “Expect more” is accurate: Shoppers’ expectations are already sky-high. But “pay less”? Not in Canada.

Target faces a unique problem for a U.S. retailer entering Canada: Customers here are almost too familiar with its stores, thanks to the popularity of cross-border shopping at a time of dollar parity. When the company announced the Zellers deal two years ago, 70 per cent of Canadians were already aware of Target, according to its research; today, it’s 92 per cent. A significant number of them have actually shopped in a U.S. Target store and seen its low-cost, stylish merchandise.

When those people set foot in the first outlets here, they’ll notice the look will be similar, but not all the price tags will be.

“We’ve built our business model to be incredibly competitive with the lowest-priced leaders in Canada,” Tony Fisher, president of Target Canada, said in an interview this week. “We’re not building our business model as compared to the U.S.” when it comes to prices.

The sheer scale and high profile of Target’s launch makes it a potential focal point for consumers angry with U.S. retailers’ higher prices in Canada. A survey last year by Bank of Montreal on a basket of goods found that domestic retail prices are about 14 per cent higher than those in the U.S.

But with the loonie close to par with the U.S. dollar, the issue has become a sensitive one. Finance Minister Jim Flaherty has raised concerns about retail price disparities and called on a Senate committee to study the matter. Its report is due in March – just as Target will be rolling out its first stores.

Other U.S. retailers, including clothiers J. Crew and Abercrombie & Fitch, have felt the public’s wrath when they have charged Canadian customers higher prices. J. Crew, with five stores in Canada now, was forced in 2011 to drop some online fees amid a public outcry (although its pricing is still about 15 per cent higher here). Abercrombie, with seven stores in Canada, in mid-October quietly lowered its prices to levels that are closer to its U.S. rates amid weak Canadian sales.

Target’s challenge is to manage consumers’ high expectations about its low-price model, to ensure its first international foray is a success.

“Target is going to have to work to develop its position if it really wants to be that ‘pay less’ retailer in Canada,” said Robin Sherk, director of market insights at consultancy Kantar Retail of Cambridge, Mass.

Target’s arrival comes as Wal-Mart Canada sharpens its pricing after having started several years ago to run weekly price checks with rivals on thousands of products, lowering prices to match those of competitors. “We try to evaluate where we’re being beaten and we adjust prices accordingly so we can maintain that competitive advantage,” said Lori Vaughn, vice-president of pricing at the Canadian division.

Even so, Wal-Mart’s prices in Canada on a basket of commonly used household and beauty goods are almost 23 per cent higher than the prices of the same products at one of its U.S. stores, shows a survey done this week by mobile research firm Field Agent Canada for The Globe and Mail.

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