Target Plans Expansion Into Canada in 2013

ELLIOT ZWIEBACH

MINNEAPOLIS — Target Corp. said last week it expects to open its first Canadian stores in 2013 following the signing of an agreement to purchase leasehold interests in up to 220 sites from Zellers Inc., a subsidiary of the Hudson's Bay Co., Toronto, at a cost of approximately $1.9 billion (U.S.).

Target said it expects to open 100 to 150 stores across Canada in 2013 and 2014. It anticipates renovating some of the Zellers locations, at an aggregate cost of more than $1 billion, the company said.

“This transaction provides an outstanding opportunity for us to extend our Target brand beyond the U.S. for the first time in our company's history,” said Gregg Steinhafel, chairman, president and chief executive officer.

Just last May, Steinhafel told analysts in a conference call that international expansion was not a priority, ranking behind the expansion of its P-fresh remodeling program. He said then that growth outside the U.S. wouldn't occur for the next several years at least: “We're doing the research, and at some point in time, we feel that we will be international.”

Target also outlined plans for the opening of 21 discount stores with expanded food sections in the U.S. in 2011. The stores cover 13 states, including five stores in California and a 174,000-square-foot SuperTarget in Minnesota set for a March 6 opening.

Planned openings include stores in Colorado, Wisconsin, Kentucky, Massachusetts, Hawaii, Arizona, Oklahoma, Louisiana, Pennsylvania, Ohio and North Carolina.

In the Zellers acquisition, Target said the $1.9 billion will be allocated in two equal payments, scheduled for May and September, after which Zellers will sub-lease the sites from Target and continue to operate under the Zellers banner for a period of time.

Target also said last week it intends to pursue the sale of its credit-card receivables portfolio, which totaled $6.7 billion (U.S.) at the end of October. It said it hopes to execute a transaction in which it would retain operating control of financial services.

After Target's announcement, debt ratings agency Moody's Investor Service affirmed its ratings of Target, reflecting the retailer's improved operating performance and credit profile and the expectation those levels are sustainable for the medium term, the service said. Charlie O'Shea, Moody's senior analyst, said, “We feel the Zeller's transaction is a positive as it gives Target the ability to gain critical mass in the important Canadian market.”