Target Corp. (TGT:US) and Wal-Mart Stores Inc. (WMT:US) plan to hire tens of thousands of workers in Canada over the next two years, increasing pressure on domestic retailers from Sears Canada Inc. (SCC) to Canadian Tire Corp Ltd. (CTC/A)
Target, the second-largest U.S. discount retailer, will hire as many as 27,000 people in Canada next year for its first stores in the country, while Wal-Mart said it plans to add 4,000 employees this year, about 500 more than it initially forecast.
“We’re in a period of great dislocation,” due to the rising presence of U.S. competitors, said Keith Howlett, retail analyst at Desjardins Securities Inc. in Toronto. “It’s going to be an extremely challenging time for retailers.”
U.S. retailers are heading north to take advantage of a economy expanding at a 1.9 percent pace and falling jobless rate. Canadian employment has grown 3 percent since 2008 while U.S. employment shrank 3.6 percent.
Wal-Mart, the world’s largest retailer, dominates market share among the top U.S. grocers such as Kroger Co., Safeway Inc. (SWY:US) and Supervalue Inc., with a 46 percent share, said Kathleen Wong, an equities analyst at Veritas Investment Research. In Canada, the general merchandisers will feel the most pressure from Target and Wal-Mart, said Wong.
“More of the impact will be on the apparel and in the department stores,” Wong said in a telephone interview. The impact on grocery store chains such as Loblaw Companies Ltd. (L) “will be a lot less,” she said.
Wong calculates Target will “steal” a total of C$855 million ($828 million) in sales from Canadian Tire, a Toronto- based motor oil-to-toasters chain. Target, whose housewares and low-priced clothing have drawn Canadian cross-border shoppers to its U.S. stores for years, will take C$397 million in sales from Sears Canada, the retailer 51 percent owned by Edward Lampert- controlled Sears Holdings Corp. (SHLD:US), she said, drawing on a report she published in December.
“It’s a challenge to recruit tens of thousands of people in a short time period,” Tiffany Monroe, Target Canada’s vice- president of human resources said in an interview. Monroe was in Alberta June 22, as part of a cross-country hiring campaign. Wal-Mart spokesman Alex Roberton said the Bentonville, Arkansas- based company boosted its hiring target from February.
Sears Canada, last week opened its biggest ever store in Canada, a 78,000 square-foot Sears Home Store in Ottawa, carrying major appliances and mattresses and offering shoppers the opportunity to design their own furniture.
Wong at Veritas said the three biggest Canadian grocers Loblaws, Sobeys Inc. (EMP/A) and Metro Inc. (MRU), by contrast hold 56 percent market share with Wal-Mart’s share yet to exceed 4 percent.
“We believe the prediction of Wal-Mart repeating its U.S. success in Canada is a far cry from reality,” she said in report dated June 12.
Target agreed last year to enter Canada, spending C$1.83 billion to buy store leases from Hudson’s Bay Co.’s Zellers unit. The Minneapolis-based company said it plans to open 125 to 135 stores in 2013 and staff each location with 150 people to 200 people. It will also hire 300 people at its Canadian headquarters in Mississauga, Ontario, by the time the stores open, adding to 400 people already there.
“Most of the Zellers are located in a mall, and this is where Target will be,” said Wong. “There will definitely be impact on smaller specialty stores, like Reitmans or any stores in the mall.” Reitmans Canada Ltd. (RET/A) dropped 17 percent in the year through June 29 in Toronto.
Target told investors last month it expects its Canadian operations to have at least $6 billion in sales and 80 cents a share in profit by 2017.
U.S. retailers have entered Canada including clothing retailer Express Inc. (EXPR:US), which opened its first store last fall and ANN Inc.’s (ANN:US) LOFT clothing store which plans to open its first store in Canada this fall.
“Canada is sort of the logical growth expansion plan right now for U.S. retailers,” said Jason Buechel, a senior executive at Accenture Plc’s retail practice in Phoenix. “If I was a Canadian retailer, I think I’d have to understand the changing landscape and how do they best combat the influence of these American-based retailers coming into the market.”
Wal-Mart has increased its employee base by 3 percent over the past five years, while Target has boosted its staff by 0.7 percent, according to data compiled by Bloomberg. Loblaw has declined by 0.6 percent over that period.
Canadian Tire has advanced 4.5 percent in the year through June 29 in Toronto, lagging the 12 percent gain among the 18- member S&P/TSX Consumer Discretionary Index. (SPTSCD) Wal-Mart has advanced 17 percent over the same period, Target has risen 14 percent and Sears Canada has dropped 2.3 percent.
“Canadian Tire knows its position within Canadian retail,” said Nicole Picot, a spokeswoman for Canadian Tire. “We’ve been competing successfully with big global retailers for years and the market gets more competitive all the time.”
Sears Canada spokesmen didn’t return phone calls placed by Bloomberg News seeking comment.
“Most people are looking for a good value and the cheapest price,” said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, in a telephone interview. “If they can find that at Target or Wal-Mart versus the grocery store chain, or Canadian Tire or whatever other retailer, they’re probably going to go there.”
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