Target: The Good, the Bad, and The Ugly.

As everyone knows by now, Target Canada is shutting its doors down and has filed for CCAA (Companies Creditors Arrangement Act; By being in CCAA, the company is still allowed to operate while a company that has filed for bankruptcy cannot). One thing can be said, you can’t blame the Canadian consumer rate of purchasing for Target’s issues. As you see below, Target entered the market as retail sales were increasing.

retail sales

Credit: Bank of Montreal.

With the closing of 133 stores and 17,600 people losing their jobs, it is not a positive economic event for Canada.[1] Overall, this would be the worst part of the situation, but there are other negatives, and some positives to the closing.

Suppliers: Some of the Canadian suppliers could have purchased equipment to fulfill the new demand from Target. Companies may now have underutilized equipment. To make matter worse, debt could have been taken out to purchase the equipment which will make the situation even more stressful.

Investors: I have seen from a few sources that Target investors can expected to see an accounting charge of $5.4 billion (USD) in terms of pre-tax losses on discontinued operations[2]. This accounting loss, even though accounting based and not entirely cash-based, will depress the stock price of the company.

Landlords: Target has reportedly 20 different landlords for their properties, with some of those landlords being publicly traded REITs (Real Estate Investment Trusts) like Morguard or First Capital Realty. Target locations are commonly anchor locations which helps to drive traffic to the rest of the shopping district. There are not many retailers in Canada that can use the amount of space a typical Target store takes. Rumors have been talked about that Loblaws, Walmart, and Goodlife Fitness are going to be bidding for the leases and ownership of the Target locations[3].

 Things are not all negative with the Target closure news.

The Good:

Available Labour: Sears Canada is offering jobs and discounts to workers who have been affected by the Target closure.[4] Sears won’t be able to hire on all of Target’s staff but it will help. Sears Canada will be holding a meet-and-greet for Target Canada head office employees and will organize local job fairs across Canada. Sears Canada employee discount will be extended to Target employees for 16 weeks[5].

Sales: It is expected that Target Canada will start to liquidate their products within 2-3 weeks[6]. It is expected that the liquidating could last 4 months, therefore, Canadian consumers could possibly find some deals…if there is anything on the shelves to buy. Also expect to be able to buy the shelving, cash registers, and other retail capital equipment.

Retail Space: Target had approximately 20 million square feet of retail space. Each Target location received a face lift of $10 to $15 million[7]. It is not every day that prime, newly renovated, and cheap real estate is available.

Investors: Investors can take some solace that with Target selling its Canadian leases and properties; it can fetch approximately $1.6B[8] which can be used to reduce its debt.

But this still get worst.

The Ugly:

Jobs: There will be more than 17,600 jobs lost to the Canadian economy. Eleven Points Logistics was the managers of the distribution centers for Target.[9] There were 3 warehouses built around the country and the people who work in them no longer have a company to support. Many small Canadian manufacturers were suppliers to Target. Some of these companies hired on new staff to fulfill the new demand. Overall, the number of jobs lost because of the closure will be hard to quantify. I would not be surprised if it was over 30,000 jobs.

As with any business decision, there is a good and bad part to the decision. How you determine to look at it can depend on your relationship to the decision, its effect on you personally, and any emotional attachment. What are your thoughts on the Target closure? Was it the right thing to do?

Feel free to visit BNN to find various stories on the Target closure.

Have an awesome week.

Kevin

Photo Credit: JD Hancock

Kevin MacDonald is the CEO of L6S Business Consulting Inc. L6S offers services in management consulting, Controller and CFO contracting, and lean management with either project work or teaching/mentoring of staff. Kevin holds his CMA accounting designation along with a Black Belt in Lean Six Sigma.

Kevin is active in the community by volunteering for different groups, his condo board and donates platelets at the Canadian Blood Services clinics on a bi-weekly basis.

Feel free to contact Kevin at @L6SBC or www.putechnologies.tk

[1] Sears offering jobs, discounts to workers affected by Target exit from Canada, The Canadian Press, January 17, 2015.

[2] BNN (Business News Network)

[3] Ibid

[4] Sears offering jobs, discounts to workers affected by Target exit from Canada, The Canadian Press, January 17, 2015.

[5] Ibid

[6] Twitter Post, January 15, 2015 1:12pm ET, http://twitter.com/KristinaParts

[7] BNN (Business News Network)

[8] Ibid

[9] Twitter Post, January 16, 2015 9:37am ET, http://twitter.com/KristinaParts

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