A couple of years after it bought leases for 220 Zellers stores, Target (NYSE:TGT) is all set to start its operations in Canada. Beginning March-April 2013, the retailer will launch a number of its brands in Canada that have been successful in the U.S. This is likely to have a positive impact on the expected store traffic. With Zellers’ wide reach, Target is well positioned to cater to a large customer base throughout the country. Moreover, Canadian customers are likely to be similar to the U.S. customers in terms of their shopping preferences.
Why Is Target Starting With Canada?
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Target needed to go international to reduce its dependence on the slow growing U.S. economy. Additionally, it already has a large scale presence in the U.S. and risks self-cannibalization if it continues to expand aggressively. Apart from this, international growth provides tremendous opportunities for Target as it offers good quality and stylish products at affordable prices. We believe international expansion was inevitable.
What was the reason for starting with Canada? The answer is fairly simple – what’s popular in the U.S. is likely to be popular in Canada too. Canadian customers have similar tastes compared to the U.S. customers. Brands that are successful in the U.S. are likely to perform the same way in Canada as well. Hence, it makes sense to invest in Canada as the associated risk is low and good returns are almost certain. Several other companies from different industries have expanded to Canada in their initial stages of international expansion. These include retailers such as Bed Bath & Beyond (NASDAQ:BBBY), Wal-Mart (NYSE:WMT) and Coscto (NASDAQ:COST), as well as some media companies such as Netflix (NASDAQ:NFLX).
In early 2011, Target bought leases for 220 Zellers stores for nearly $1.8 billion.  The retailer plans to renovate sites, establish supply chain capabilities and build an information-technology infrastructure to support its expansion plans. Zellers is one of the largest mass-merchandise retailers in Canada, and this move will allow Target to acquire a large customer base right from the start.
Target Following The U.S. Success Story
Target is going with the strategy that has helped it succeed in the U.S. The retailer recently announced the brands that it will be launching in its Canadian stores. Most of them include Target’s limited edition and exclusive product line such as Nate Berkus collection (interior design), Threshold (furnishing) etc. 
These products are popular with Target’s customers in the U.S. and we expect similar response in Canada. Additionally, Target will be launching exclusive products for its Canada stores such as Roots Outfitters and Kate Young’s collection (one of the popular stylists in Hollywood).  These products will be available for a limited time only. We believe that the customers will be attracted to these offerings and might end up buying a lot more, given the large variety of merchandise available in Target’s stores.
Target is already a popular retail brand in Canada and its exclusive product offerings at compelling prices will further strengthen its business.
Our price estimate for Target stands at $60, roughly in line with the market price.Notes:
- Target’s SEC filings [↩]
- Target Announces Brands Set To Launch In Canadian Stores, Canada Newswire, Jan 25 2013 [↩] [↩]