Target's full-blown retreat from Canada shows the benefit of a new broom. Investors cheered the $50 billion US retailer's decision on Thursday to close shop north of the border, where the company's expansion was poorly planned and executed. At least it wasn't the current chief executive's idea. Brian Cornell, in charge since last July, can safely take the hit for exiting Canada and focus his attention elsewhere.
The company pushed hard into Canada with its "cheap chic" concept, opening 133 stores in less than two years under Cornell's predecessor, Gregg Steinhafel. Target expected its higher-quality merchandise at mass-market prices to resonate north of the border.
Rather than trying to replicate the slow-burn buzz that made the Minnesota-based Target a success in the United States, though, Steinhafel launched a full-scale invasion that taxed the company's supply chain. He also gave Wal-Mart and domestic Canadian competitors plenty of time to prepare.
Steinhafel lost his job after the losses in Canada and a massive network breach that compromised data for as many as 110 million customers. Cornell has concluded that Target Canada was unlikely to turn a profit for another six years. That's an eternity given the ongoing pressures faced by big-box retailers even in more comfortable markets.
Pulling the plug will blow a $5.4 billion hole in Target's fourth-quarter results. But it should eat up only $500 million to $600 million of cash - about nine per cent of the Ebitda analysts were penciling in for the financial year before Thursday's announcement.
That's manageable damage and Target's managers will be able to spend their time and the company's money on other pressing issues, like rebuilding trust with customers after the cyberattack and managing the relatively small but fast-growing online business as it competes with Amazon and Wal-Mart, among others. Shareholders pushed the company's stock up more than two per cent. While Cornell's credibility wasn't at stake, it's still refreshing to see a failed experiment shut down cleanly.
