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Target's (NYSE: TGT ) longtime goal of rolling out 100 to 150 stores in Canada in 2013 and 2014 is starting to take shape. The discount retailer opened its doors in the country earlier this month, with three stores now up and running in southern Ontario. Target's debut in the Great White North marks the retailer's first push outside the United States.
The company revealed its expansion plans at the start of 2011, after purchasing the leasehold interests of Zellers stores in Canada. This year, Target plans to spend $1.5 billion on store openings in Canada. That's in addition to the $2.7 billion the retail chain has already spent remodeling old Zellers locations, according to The Wall Street Journal.
This is a significant investment for Target. However, the retailer expects to generate Canadian sales of at least $6 billion in the coming years, according to Reuters. The company is also set to open 124 Canadian stores in time for the all-important holiday shopping season in December.
Target's Canadian locations will carry most of the chain's popular U.S. brands, as well as some merchandise that's exclusive to Canada, including the country's popular Roots brand. More importantly, Roots is creating a limited-edition fashion line for Target Canada, known as Roots Outfitters. "Our goal is simple: to offer a brand that's true to both Target and the uniqueness of Canada," Target Canada President Tony Fisher commented.
Target's affordable designer collections have been a hit in the U.S., but it will be interesting to see how this works out for the company in Canada. One thing is certain: Target's aggressive push into the north has rival Wal-Mart (NYSE: WMT ) worried. In fact, Wal-Mart now says it will spend more than $750 million this year on new store openings and remodels in Canada.
What's an investor to do?
It seems 2013 will be an exciting year for Canadian consumers. However, what does this mean for Target shareholders? Target's profit margins will probably suffer in the year ahead, as costs mount related to new store openings. Longer-term, though, I suspect these initiatives will create value for the company and its investors.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only the most forward-looking and capable companies will survive, and they'll handsomely reward investors who understand the landscape.
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