Five Points To Consider About The Zellers / Target Deal

The newswires are buzzing this morning with the news that Target has acquired Zellers.

I just wanted to take a few minutes to reflect on the facts as presented by both Target and HBC.

1) Target did not buy Zellers

At its core, this is a real estate deal. Target has agreed to purchase the leasing rights for up to 220 sites that currently host Zellers stores. HBC did not own most of its Zellers store locations but instead was leasing them at very attractive rates through long-term leases.

2) Target will not show up as a retailer until 2013

The first Target branded stores will not appear in Canada until 2013. This is a few years quicker than Target had previously announced that it would come to Canada. The deal will also allow for Target to roll-out much faster than it could opening one location at a time.

3) Zellers is still here until 2013 – or beyond

Zellers will continue to be a presence in the Canadian market until the Target brand starts appearing on Zellers properties after extensive renovations and store upgrades (at least we hope).

4) Unclear Whether Target Will Launch Super Target

Recently, Target has been making a major push on food in its US stores. There has been no mention so far as to whether some of the larger Zellers properties would be converted into its Super Target format that competes with Wal-mart Supercentres and other grocery retailers. It is unlikely that Target will want to push itself into a fresh food war in Canada – instead focussing on its core categories that have driven success in the US.

5) Not all Zellers sites have been sold to Target

Other retailers including Wal-mart may end up taking some of the Zellers sites that Target for which did not acquire the lease rights. There will be about 60 sites that will be split among other retailers looking to come to Canada including J. Crew, Kohl’s, Dicks Sporting Goods and others.

It is exciting that Target is coming to Canada, no doubt. The industry must also think about how they will manage Zellers over the next two years until Target starts to rebrand the sites and take responsibility for their operations.

Its time for CPG suppliers to go back to their channel strategy and make the appropriate adjustments. You can not afford to ignore Zellers for the next two years but caution should be exercised over greater ambitions.

Retailers have some time to strategize how they will make themselves unique and relevant in a retail landscape with Target present. Target does not have the same factor that Walmart carries – but they are great retailers and will force our industry to up its game in order to effectively compete.

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