Last week, Target Corporation (NYSE:TGT) announced that all its stores would be closed by April 12th (this Sunday), marking the end of its disastrous Canadian expansion. Experts are debating what went wrong for the retailer, but a more important question remains: What happens now?
To be more specific, what impact will this have on some of Canada’s largest retailers? Below, we take look at one of them, Canadian Tire Corporation Ltd. (TSX:CTC.A).
How times have changed
Two years ago, the story was very different. Target was just entering Canada, something that Canadians were eagerly awaiting. Meanwhile, Canadian Tire seemed to have a love-hate relationship with its own customers. The stores were known to have cluttered aisles and poor service. It’s no wonder The Globe and Mail said that Target’s entry could be Tire’s “biggest challenge yet.”
It wasn’t just Target that would steal market share. Wal-Mart was planning to fight back, which involved a big store expansion. Analysts anticipated a price war, which would have been very bad for all retailers, including Tire.
That said, Tire did have one thing working in its favour: history. The company famously survived back in the mid-1990s, when both Walmart and Home Depot entered Canada. At the time, the company knew it had to up its game and acted accordingly.
A different company
When Target came to town, Canadian Tire knew it had to up its game again, and that is exactly what it did. Its “Smart Store” concept is a vast improvement over the traditional Canadian Tire stores, and its other banners have gotten a nice facelift too. Canadians have responded well—revenue from the retail segment grew by an impressive 10.4% just last quarter.
So, when looking ahead, Canadian Tire is much better off than it would be if Target never arrived. I expect many more years of solid performance for the company.
Don’t expect too much
As Target leaves, the company will leave behind roughly 15 million square feet of retail space. On the surface, this seems like a golden opportunity for companies like Canadian Tire. That said, I wouldn’t expect the company to snap up too many leases. Some of the Target stores are in poor locations, and others are already close to a Canadian Tire store.
Likewise, I wouldn’t expect a big sales impact once Target leaves. Because Target struggled in Canada so much, it isn’t leaving behind such a big void once it leaves.
Still, when looking at the long term, I expect Canadian Tire to thrive for many years. It is now very battle-tested, and has come out stronger as a result. Shareholders should feel very comfortable for a long time.
