Target Takes Aim in Canada, Misses and Leaves
"When I joined Target, I promised our team and shareholders that I would take a hard look at our business and operations in an effort to improve our performance and transform our company," said Brian Cornell, Target chairman and CEO in the release. "After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021."
The employee fund would ensure that "nearly all ... receive a minimum of 16 weeks of compensation, including wages and benefits coverage for employees who are not required for the full wind-down period," according to the release. The stores will remain open for liquidation. Some employees will continue to have positions until the locations are closed.
$5.4 Billion Write-Down
The parent will also provide $175 million to finance operations during the liquidation. The costs to discontinue Canadian operations are expected to run between $500 million and $600 million, most of which will hit Target's books this year. The closing will become a $5.4 billion write-down for last quarter and another $275 million in fiscal 2015. The total is higher than the costs to discontinue operations because it takes into account Target's investments to start the Canadian division.
Target Canada had been experiencing problems for some time, according to CBCNews. Prices for consumers were higher than expected, a problem for a discount chain, and shelves were often empty of product because of supply chain issues. The company had lost $1 billion in its first year. In November, Cornell said that the operations needed a "major step-change," although there were signs that losses were narrowing and sales had increased by as much as 44 percent in the July-September quarter.
The death knell for the company was the last calendar quarter of 2014. Traditionally the holiday season is the busiest and most profitable time of the year, but the improvement wasn't large enough to satisfy the parent.
"The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests. 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," the release quoted Cornell.