Wednesday, January 21, 2015
Target Closes Canadian Stores
The retail chain Target has announced that it will be closing all of its Canadian stores by May of this year, a mere two years after its operations in Canada began. This move has many people speculating about the future of Target and its expansion beyond the United States.
As for operations outside of the United States, it is unlikely that expansion into other countries will continue anytime soon. The stores operating in Canada were Target's only outlets in a foreign country. Because of how quickly the chain is making its exit from the Canadian market, it is fairly clear that further efforts to push into other markets will not come anytime soon. The chain's business in the United States, however, has remained strong, making it unlikely that it will suffer further losses.
Financially, Target does not seem to be in severe danger, although the exit from Canada and the losses associated with it will certainly cut into profits for 2015. These expenses include the sale of merchandise at a strongly discounted rate, the payment of employees through the first week of May, and the likely loss of money invested in the properties currently occupied by Canadian outlets. These properties, though valuable, will be difficult to liquidate in the current Canadian economy, and therefore represent a significant liability. The loss of revenue in the Canadian market was over $2 billion, making it necessary for the corporation to cut its losses. Stores in Canada were not projected to be profitable until 2021.
On the whole, the closure of Canadian stores will not be detrimental to the success of Target in the future. Though there will be financial losses involved, the chain's business in the United States remains strong. This result is likely at least in part the result of expanding into Canada too quickly. In opening over 130 stores in a period of under 2 years, Target took on a very large liability. In making the move to close the Canadian stores, Target has protected itself from incurring further losses, and removed a branch of its operations that would not have become profitable for years to come. While this decision certainly represents a reduction in the size of the company, it was likely the wisest move that Target could make given the circumstances to protect the more profitable sectors of its business. As such, the chain will likely remain profitable into the future.
Jonah Engler is a New York Entrepreneur and frequents Target to purchase his coffee. Could the closing of Target's Canadian stores has a US fallout?