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Canada's latest retail sales figures must have Target Corp. wondering what it got itself into.
The big U.S. retailer, whose early returns from its launch this year into Canada have dripped red ink, woke up Thursday morning to see that Canada's consumers seemed to have lost their will to shop. June's retail sales were down 0.6 per cent from May, the worst performance this year and the second-worst in nearly two years. Ontario – where Target has roughly half of its current Canadian stores – posted a 1.4-per-cent sales decline.
Target's executives might be tempted to point at the results and say, "See? This is why our second-quarter sales in Canada were so weak!" That would be convenient – if only it were entirely true.
The quarter was actually just fine for Canadian retailers as a whole before June came along. Sales were up modestly in April, before surging 1.8 per cent in May. Even with June's pullback, Canada's retail sales for the entire quarter were up 1.4 per cent – the second-best quarter in the past two years.
And one of the biggest drags on the June number – accounting for nearly half of the month's decline – was Quebec, where sales fell 1.3 per cent. How many stores does Target have in Quebec? Zero.
Indeed, Quebec is the last major Canadian province that Target will enter. It has 25 stores slated to open in Canada's second-biggest province in the fall, which will make it the retailer's second-biggest Canadian market. (It also plans to enter the smaller Atlantic provinces in the fall.) The retailer is already stumbling in the rest of Canada; it will find the footing even more treacherous in Quebec.
First, it's about to go big into one of the slowest retail environments in the country. Quebec's retail sales over the past 12 months have grown just 1.9 per cent, far below the national total of 3.1 per cent.
Then there's the language issue – a key reason why Target has yet to launch in the predominantly French-speaking province. If Canada's consumer culture has been a tough puzzle to solve, Quebec is going to seem like an entirely new planet. Target's big U.S. competitor, Wal-Mart Stores Inc., found quick success throughout most of Canada, yet struggled in Quebec, where it badly underestimated the language gap.
Overall, you have to wonder about Target's wisdom in leaping into its first foreign market, at a time when Canada is smack-dab in the midst of a household-debt retrenching cycle – something that is likely to remain a drag on consumer spending for many months to come. The decision becomes even more questionable when you consider where the bulk of its Canadian operations are located: The three provinces where it will have the most stores by year-end (Ontario, Quebec and British Columbia) all rank among the four slowest provinces for retail sales growth over the past 12 months. Its operations are tilted toward the slowest-growth parts of the country.
The battle isn't about to get any easier for Target. Shareholders will hope they don't have to learn to spell "disappointment" in two languages.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @parkinsonglobe.