Target Canadian expansion strategy would look awfully familiar to Walter Zeller, the founder of what was once Canada's dominant discount retail chain.
The Canadian retailing icon employed the same strategy to found his Zellers chain of stores in 1932, buying 14 Canadian stores belonging to a bankrupt American retailer for $500,000, closing three and slapping his name on the remainder.
Over the decades, rivals such as Towers, Woolco and K-Mart had difficulty competing against a chain that had intensely loyal customers from coast to coast and was deeply rooted in many communities. Zellers was especially well regarded when it came to staples such as children's clothing, with a reputation for reasonably priced items that held up well.
"Zellers, for most of its history, was quite simply the major discount store in the country," said Ed Strapagiel, a retail expert and vice-president at Kubas Consultants. "It really was quite phenomenal - it didn't necessarily offer the most fashionable items, but it had a reputation for good and sturdy clothes."
Mr. Zeller sold control of the chain shortly before he died in 1957, but his relatives have remained intensely proud of the stores. "I shop at Zellers all the time," said Kathryn Wentzell, a distant cousin who wrote a history of the Zeller family and lives in Waterloo, Ont. "It means a lot to me. It will be very sad if the Zellers name were to disappear."
The chain is not gone, at least not yet - but it will be a shell of its former self once Target Corp. completes its conversion of up to 150 Zellers stores into Targets within the next two years. The deal actually includes leases on 200 properties, but some may be sold to other retailers or shuttered. The remaining Zellers stores - about 60 of them - could continue on or take a different banner, such as Fields, which is also owned by parent Hudson's Bay Co.
For Zellers, everything changed in 1994, when Wal-Mart Stores Inc. purchased about 100 Woolco locations. Canadians had been exposed to the American retail giant in the press and on cross-border shopping trips, and embraced Wal-Mart almost immediately.
The effect would be devastating to Zellers, and the chain was never able to recover from the intense competition introduced to the Canadian market. Wal-Mart had a deeper supply chain and could offer lower prices, but it also put more effort into customer service, with the introduction of greeters and a higher number of employees in each store.
"The question I have most often been asked over the last 15 years is whether Zellers is financially viable," said Edward Sonshine, chief executive officer of RioCan Real Estate Investment Trust, which leases property to 33 Zellers stores. "I'd always say they have too much good real estate not to be financially viable."
Zellers tried to stop Wal-Mart's relentless advance by buying Towers and K-Mart locations across the country, but it wasn't enough to keep Canadians out of its archrival's stores.
"The Canadian perception of Zellers changed the moment Wal-Mart arrived," Mr. Strapagiel said. "The results of our surveys always showed Wal-Mart well ahead of Zellers when it comes to perceptions about value for money and customer service. Canadians just took to Wal-Mart like a duck to water."
Analysts said the company managed to stay viable for as long as it did because of the low cost of its long-term leases with landlords, who were happy to have the stores as a major anchor tenant. RioCan charged the company an average of $6 a square foot for space - far below the industry average of about $14.
"Nothing against Zellers - but once Target gets into those stores, we expect they will be far more productive than Zellers ever was," Mr. Sonshine said.
Maybe, but Target shouldn't count on getting Ms. Wentzell as a customer. She already refuses to shop at Wal-Mart and is frustrated that another Canadian retail banner is losing out to an American one. "They come in and they take over and I'm very sad about that," Ms. Wentzell said. "It's a downer. We have pride in Zellers."
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