Target to shutter all stores in Canada

Target is pulling out of Canada after two disastrous years.

The U.S. retail icon said Thursday that it plans to abandon its 133 stores in Canada, which have suffered from poor supply chain management and a misguided pricing strategy. The operation has lost more than $2 billion since the expansion was announced in 2011.

Target (TGT) stock closed up 1.8%, to $75.67 a share.

The Canadian business is seeking court approval to begin liquidation, the Minneapolis-based retailer said in a statement. The move will lead to a $5.4 billion write-down. CEO Brian Cornell said in a statement that the holiday season wasn't strong enough to bolster Target Canada's chances for success.

"The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests," Cornell said. "We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance."

Cornell also said that "we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021."

Early fatal flaws in Target's Canadian expansion were too big to overcome as the chain struggled to gain traction in the country, industry analysts say. The company lacked the distribution network it needed to supply stores, leaving shelves inconsistently stocked and disappointing shoppers. And Canadian shoppers who had previously frequented Target's U.S. stores were confused by the pricing disparity between the two countries.

"The expectation of the Canadian shopper was Target's pricing in Canada would mimic pricing in the U.S., and that's not what happened," says Charlie O'Shea, a retail analyst with Moody's. "When that didn't happen, they obviously lost a lot of traction and momentum." He says Target Canada stores didn't price merchandise as competitively as the company's U.S. stores.

Even Target itself admits the Canadian business was plagued with problems. "We tried to do too much, too fast," says spokeswoman Molly Snyder. "We have a lot of operational challenges. From how sharp we are on pricing ... we certainly had supply chain and logistics issues."

Target also overlooked key differences between the U.S. and Canadian markets and couldn't compete with well-established brands that have developed strong loyalty in the country, says Kevin Sterneckert, chief marketing officer of Order Dynamics, a retail software company.

"A major issue in Canada is geography," he says, speaking to how spread out the country is. "The nature of the consumer in Canada changes dramatically depending on what region of Canada you're in."

Both Sterneckert and O'Shea say Target didn't grasp how to cater to the Canadian customer and didn't tailor store assortment to a consumer base influenced by both European and American lifestyles. "It's a much different market than the U.S., and I don't know that people really recognized that," O'Shea says.

Target Canada currently employs approximately 17,600 people, To ensure fair treatment of Target Canada employees, Target said it is seeking the court's approval to voluntarily make cash contributions of about $59 million into an employee trust. Under the proposed trust, nearly all Target Canada-based employees would receive a minimum of 16 weeks of compensation, including wages and benefits coverage. Target Canada stores will remain open during the liquidation process, which is expected to be complete between May and June, Snyder says.

Target entered Canada in 2011 with the purchase of 220 locations from Zellers Inc., a subsidiary of Hudson's Bay Co.