Target Corp. is making a foray into Canada with a deal to buy sites of discount store chain Zellers Inc. from Hudson's Bay Co.

Target Corp., Target, Zellers, Hudson's Bay Co., discount store, Canada, discounter, discount store chain, Canadian retailer, Gregg Steinhafel, Michael Francis, Canadian market, Richard Baker, Russell Redman

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Target to enter Canada with buy of Zellers sites

January 13th, 2011

MINNEAPOLIS – Target Corp. is making a foray into Canada with a deal to buy sites of discount store chain Zellers Inc. from Hudson's Bay Co.

The Minneapolis-based discounter said Thursday that it has agreed to pay nearly $1.83 billion Canadian ($1.85 billion U.S.) to purchase the leasehold interests in up to 220 sites currently operated by Zellers Inc. According to Target, the deal will pave the way for the first Target stores to open in Canada beginning in 2013.

Under the agreement, Zellers will sublease the 220 sites from Target and continue to operate them under the Zellers banner for a period of time.

Target expects to open 100 to 150 Target stores throughout Canada in 2013 and 2014. The company said it expects the financial returns on the stores to be in line with returns on new Target stores in the United States, resulting in dilution to earnings before store openings followed by accretion to earnings in the first full year of store operations.

The retailer noted that these initial stores will provide a strong foundation for a "more robust Target presence" in Canada down the road.

"This transaction provides an outstanding opportunity for us to extend our Target brand, Target stores and superior shopping experience beyond the United States for the first time in our company's history," Target chairman and chief executive officer Gregg Steinhafel said in a statement. "We are very excited to bring our broad assortment of unique, high-quality merchandise at exceptional values and our convenient shopping environment to Canadian guests coast-to-coast. We believe our investment in these leases will strengthen the surrounding communities as well as create strategic and financial value for Target stakeholders."

In announcing the purchase, Target has named chief marketing officer Michael Francis as the executive committee sponsor of the retailer's entrance into the Canadian market. In the role, Francis will oversee the extension of Target's brand as part of the corporation's first-ever expansion of its stores beyond the United States, according to the company. He will continue to report to Steinhafel.

Francis began his marketing career in 1985 with Marshall Field's in Chicago. In 1990, Marshall Field's was acquired by Target, and Francis joined the marketing division of the department stores division, where he held a variety of positions. He was promoted to executive vice president of marketing at Target in 2001 and became chief marketing officer in August 2008.

"Under Michael's leadership, Target has emerged as one of the most recognizable brands in the world, and I am pleased that he will guide our expansion into Canada," Steinhafel stated. "With more than 25 years of experience with this corporation, Michael has a deep understanding of Target and the retail industry. His responsibility for corporate brand and reputation including our community relations efforts uniquely position him to lead this effort."

Reports that Target was looking at the Canadian market surfaced last fall. Rival discounter Walmart has more than 300 stores in Canada.

Hudson's Bay Co. said that in the wake of the sale to Target, Zellers Inc. will continue to operate a portfolio of Zellers stores in certain communities across Canada. The Canadian retailer added that that it expects some Zellers locations to be assigned to other retail enterprises.

"This transaction provides attractive, long-term value and will allow us to invest substantial capital into our department store and specialty store businesses to continue to drive growth," Richard Baker, governor of Hudson's Bay Co., said in a statement. Besides Zellers, Hudson's Bay Co. operates the Bay department stores, Home Outfitters specialty stores and value-priced Fields stores.

According to Hudson's Bay Co., the sale to Target stands to create more than 20,000 net new jobs in Canada and could generate over $1.5 billion in Canadian economic activity through the renovation of the Zellers locations. "The entry of Target Corp. into the Canadian market will provide a broader retail product offering to Canadian consumers," Hudson's Bay Co. stated.