TORONTO (Reuters) — Target will abandon its ill-fated expansion into Canada less than two years after its launch, the U.S. discount retailer said on Thursday in a surprise full retreat that will put more than 17,000 employees out of work and cost the company billions in writedowns.
Target's shares rose three per cent in mid-morning trading after the company said it will seek court protection from creditors in Canada for the money-losing subsidiary and shut all its 133 stores in the country.
The company said it expects to report about $5.4 billion in pre-tax losses for its fourth quarter, which finishes at the end of January, mostly due to the writedown of the Canadian investment, along with exit costs and operating losses.
Target has struggled in Canada since its 2013 launch, facing huge supply chain problems that left stores thinly stocked, disappointing shoppers who had eagerly anticipated the retailer's move into the country, where the discount space had long been dominated by Wal-Mart Stores.
The company said in November it would review the future of the Canadian business after the holiday season.
"The analysis was rigorous. Unfortunately, we were unable to find a realistic scenario that got Target Canada to profitability until at least 2021," CEO Brian Cornell said on Target's online magazine, www.abullseyeview.com.
"The losses were just too great."
While some analysts had called for a complete exit from Canada so Target could focus on U.S. operations, many had expected a more measured approach, with the company closing the poorest performing stores as it assessed long-term goals.
While the stock rose on the news, the failed expansion bodes poorly for Target's long-term growth prospects, given it could not succeed in an neighboring country with the same language, said Jim Danahy, director of the Centre for Retail Leadership at York University's Schulich School of Business in Toronto.
"There isn't a bigger implosion and it needs to be really understood this it's entirely their fault," Danahy said.
Target has acknowledged it took on too much too fast in Canada and the disastrous launch spurred the exit of top executives both in Canada and the United States.
The company said stores would remain open during liquidation, and that with court approval it would pay all of its Canadian employees a minimum of 16 weeks of compensation.