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John Thomson  

Thomson report

Is it finally about to happen?

We have written about these rumours from very solid sources in the industry over the last ten years about new U.S. merchants looking north to Canada for their new expansion plans. Chains like Walmart and Home Depot led the way in their investment in the Canadian market.

Now once again the rumour mill heated up about the Hudson Bay Co. and their chain Zellers. Last fall we wrote that Target stores from Minneapolis had finally made it public that they were interested in Canada and the expansion possibilities in this new market. They seem to be the only retailer that fights for position against Walmart in the U.S. and is a huge winner in the retail battles. They have done it very well with so much class.

Now the story, and I checked with my friend who is a retail consultant in Toronto and what he had heard with the latest stories of Target making a deal with HBC for a number of Zellers stores in Canada. His reply was that he believed there was something in the works right now and maybe we could expect an announcement any day.

Then came the news that the Hudson Bay Co. and Target had made a deal.
Under terms of the deal, Minneapolis-based Target will make two payments of $912.5 million in cash, in May and September 2011, to acquire the leasehold interests of 220 Zellers locations in Canada.

The Zellers locations will continue to exist under that brand name for "a period of time," HBC said in a release. But Target will convert 100 to 150 of those Zellers locations to Target stores in 2013 and 2014 and possibly sell the rest of the current Zellers network of store leases to other retailers.

There will undoubtedly be changes to retail dynamics, providing solid competition to Walmart, which by the way was also at the table, looking to pick up some of the Zellers stores.

“Wal-Mart Canada should be concerned about the Target entry,” said Rick Pennycooke, president of the retail real estate consultancy Lakeshore Group. “There will definitely be an impact on their stores, at least in the short term.”

This a financial bonanza for HBC. In 2008 for roughly $1.1-billion they purchased the HBC group and now are set to collect more than $1.8-billion in the agreement, plus “hundreds of millions of dollars” for an estimated $800-million worth of Zellers inventory that will be divested.

Also the HBC owns at least $1 billion worth of real estate.

No matter what you have read or heard Zellers wasn’t losing money and their earnings have been triple what they were when the U.S. owners bought the chain.

All the excitement about the new player in the Canadian market could change slightly depending on the Canadian courts because the name Target is registered in Canada to a company who has opened Target stores in Nanaimo and Sudbury with another planned for Surrey this spring. Now the courts must decide who will own the name in Canada unless another side deal is made. We had two situations like that here over the years when the Home Depot purchased the name from a Westbank merchant and Best Buy now building a new store at Orchard Park also paid to have the Best Buy store on Harvey close.

Walmart, when they made their decision to come to Canada, made the move by buying up the Woolco chain in this country giving them a head start in the expansion with stores already in place.

Walmart Canada was established in 1994 with the acquisition of the Woolco Canada chain of 122 stores. As of November 2010, there were 206 Wal-Mart Discount Stores in Canada and there were now 116 Wal-Mart Supercentres in Canada.

There are 280 Zellers stores.

As we have said before also interested in the Canadian market is Kohl’s Department stores of Wisconsin. Lowes the number two home improvement store in the U.S. has moved into Canada with their first stores in Ontario and now opening in Edmonton and Calgary.

It is going to be interesting.


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About the Author

John Thomson is the Okanagan's pre-eminent business columnist writing his column, Rumours and Things, for over 24 years. Plugged in to the valley's who's who, John keeps his readers coming back for more with his straight talk and optimistic perspective on where we are headed next.

When John is not writing his column, he runs a sixteen year old think tank called the Executive Roundtable and holds his popular "Thomson Presents" quarterly business speaker seminars.

Have a comment, question, or tip for John? 

E-mail John at
[email protected]
or send him a fax at 250-764-8255.

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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