With a new CEO at Target, we expect he will most likely concentrate company resources (people and capital) on the most strategically important and most impactful business opportunities that will drive earnings. The opinion of retail industry expert Antony Karabus is that this is a particularly important step as the new CEO, Brian Cornell, builds his agenda for driving value. Mr Karabus believes that Target has more substantial upside in its core US business, in particular as a result of the mis-steps made by the former Target Canada leadership in over-estimating the top line potential and in poorly managing the Canadian business and customer experience. Karabus believes the competition in Canada is more substantive than Target anticipated and that this, together with continuing significant sales and losses in the Canadian business, positions the new CEO to cut the Company’s losses by strategically exiting the Canadian business. Mr Karabus feels that Mr Cornell has made some good moves in his first few months in strengthening his leadership team and that he will focus his plan on the key strategies that will bring the most substantive value to Target Corp

Mr. Karabus says that, generally, Target's Canadian operations face fierce and perhaps insurmountable competition. Several successful retailers in Canada have substantial overlap in many product categories as Target, and have maintained or grown their share of market since Target’s Canadian entry. Retailers including Costco, Walmart, Canadian Tire, Giant Tiger and London Drugs continue to be formidable competitors, each offering value-priced products in more innovative retail environments, coupled with much more incumbent customer loyalty. Karabus believes that while Target Canada can make some progress as it corrects its supply chain, assortment, in-stock and pricing issues, it will continue to be extremely difficult for Target to entice large numbers of loyal Canadian customers away from those chains without enormous continuing investment in creating an innovative and compelling proposition and shopping experience.

Mr Karabus summarized the strong Canadian competition as follows:

1. Costco, for example, has twice as many stores per capita in Canada than in the United States -- with about 475 American locations and over 90 in Canada. Both Target and Costco attract similarly affluent budget-conscious shoppers, across a spectrum of product categories.

2. Walmart Canada has substantial market share in the value sector, with over 400 stores and well over $20 billion in annual sales.

3. Canadian retail icon Canadian Tire has very strong customer loyalty, exceptional locations near almost every Canadian’s address and carries a wide variety of “ in demand brands” in many of the product categories that Target Canada carries.

4. Value-priced Giant Tiger has over 200 Canadian locations, with plans for expansion.

5. Western Canada's London Drugs who sells more small appliances than any Western Canadian retailer, for example, with numerous stores in prominent urban and suburban locations.

6. Despite store closures, Sears still maintains numerous strong Canadian locations and should not be discounted as a key competitor in both apparel and hard goods

Mr. Karabus suggests that Target Corporation may in fact be able to more quickly revitalize the business by shutting down its Canadian operations. He advises new CEO Brian Cornell to focus its human and financial capital on reviving and optimizing its US business, both in regaining its historic brand popularity and its focus on innovation, fashion and customer service. Further, Target's US e-commerce business has significant upside potential under new leadership, addressing increasing online competition. Target's Canadian operations, in his view, are a substantial distraction, given the above opportunities in the core US business. Mr. Karabus believes Target Corporation would get relatively more upside in optimizing its US bricks and mortar and e-commerce businesses, while exiting Canada and strategically sell its existing Canadian store leases to retailers seeking retail space.

Target currently operates 133 Canadian stores. Mr. Karabus says Target could reduce its losses through 'package deals' to various retailers, depending on individual location desirability. Given the footprint size of Target Canada stores, a combination of several retailers could be candidates for acquiring selected Target Canada leases over the coming years. Walmart is a likely choice for many Target locations, according to Mr. Karabus, as the American behemoth looks to continue its Canadian expansion. Home goods retailers such as Home Depot, Rona and Lowe's could also benefit by taking over select locations. Large grocery stores such as Loblaw, Sobeys, and Metro might also be good candidates for some Target leases, given appropriate sizes and locations. Others such as Nordstrom Rack, DSW Designer Shoe Warehouse, Hudson's Bay Outlet and Saks Off 5th by Saks Fifth Avenue will all enter or expand Canadian retail space in the next few years, and portions of existing Target stores could house these and other larger-format retailers. At least a couple of existing Target stores could even become luxury department stores. Target also holds valuable real estate in top malls such as Calgary’s Chinook, Mississauga's Square One, West Edmonton Mall, Calgary's Market Mall, Burnaby's Metropolis at Metrotown, and a number of other locations that will be the subject of a separate article.

As Canadian retailing becomes more competitive in 2015, there will continue to be fallout. According to Mr. Karabus, focus by Target Corporation’s new CEO on getting back to the essence of what historically made the retail brand great in its core US market is the best and most strategically sound path to success, rather than continuing to spend the precious talent and resources of its key executives on trying to improve results in a challenging and competitive Canadian retail environment

About Our Expert:

Antony Karabus will be the keynote speaker for the University of Alberta School of Retailing's Thought Leadership Conference being held in Edmonton on March 6, 2015. Visit its website to learn more and attend.

Mr. Karabus became CEO of HRC Advisory in January of 2013. He has been a trusted and passionate advisor to retailers on strategic and financial performance issues for over 25 years. He has assisted numerous North American retailers to create significant shareholder value during this time. He has worked with numerous well known retail chains in key sectors such as department store, specialty apparel and hard lines, big box chains and food and convenience.

Antony began his career at Arthur Andersen in Cape Town, South Africa and moved with the firm to Toronto, where he founded Karabus Management as a Canadian retail advisory firm in 1990. In 2001, Karabus Management expanded into the United States, where the firm became a leading North American specialist retail consulting firm. In 2008 he sold the firm to an International Accounting/Consulting firm where he served as the leader of that firm’s Retail Consulting Services practice until he left the firm in December 2011.

Antony conducts annual surveys of Retail CFO and CEOs to determine key priorities in assisting their business to enable substantive value creation.

Antony is a recognized speaker and a published author providing thought leadership at industry forums, including the National Retail Federation, Retail Council of Canada, World Retail Congress and the Fashion Institute of Technology and providing content to The Wall Street Journal, The New York Times, Stores Magazine, The Globe & Mail, Chain Store Age, National Post, Toronto Star and Women’s Wear Daily, among others.

About HRC: HRC Advisory is a specialist boutique retail advisory firm. Together with its predecessor firms, it has been assisting Canadian and US Retail Chains to improve their profitability and strategic positioning for more than 25 years. Many of HRC’s senior advisors were previously at Senn Delaney Retail Consultants and Karabus Management following retail leadership roles. Other senior advisors at HRC have a mix of retail leadership and retail consulting experience gained with other leading firms

HRC has significant retail depth in strategic planning, buying, merchandise planning and inventory management, indirect procurement, store operations and omni-channel processes, supply chain/logistics and fulfillment, and comprehensive cost optimization services. HRC has worked extensively with both healthy top performing chains as well as developing and executing turnaround mandates at a number of retailers in difficult situations. For more information, please visit www.HRCadvisory.com.