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Target’s recipe for fixing Canada: Make it more like the U.S.

Target To Leave Some Stores Open To MidnightTarget To Leave Some Stores Open To Midnight
Shopping carts sit in front of a Target store in the U.S.Photograph by Justin Sullivan—Getty Images

Target’s plan to turnaround a dismal start in Canada? Follow its U.S. playbook.

The retailer, which lowered its full-year profit forecast on Wednesday due to another quarter of anemic U.S. sales, gave investors more details about how it intends to turn around a troubled start to the company’s first move outside the U.S. Target has been criticized for doing a poor job replicating its American shopping experience in Canada, and executives are under pressure to accelerate sales and eventually justify the investment by building the business up so it can generate a profit.

“We only get one more chance [with the Canadian consumer],” Target’s Chief Financial Officer John Mulligan told the U.S. media on Wednesday. He admitted Target’s Canadian stores only offered a subset of merchandise that was sold in the U.S., angering shoppers when they were unable to find items they liked when shopping across the border.

What’s Target doing to fix that perception? It has signed exclusive collaborations with apparel and home decor maker Beaver Canoe and interior designer Sarah Richardson (similar to exclusive deals Target has signed in the U.S.). The company is also selling more exclusive cosmetics, household cleaner products, and other items for the home. The retailer will also angle to be more competitive on pricing, including the implementation of a price-match policy to better compete with online and local competitors in Canada.

Chief Merchandising Officer Kathy Tesija told analysts that of the 70,000 items stocked in a typical Canadian Target store today, about 30,000 will be new in time for the holiday season.

Those efforts highlight how Target’s new Chief Executive Brian Cornell is wasting no time in fixing the retailer’s woes in Canada. The former PepsiCo executive flew up to Canada during his first week on the job, as he aims to learn quickly about Target’s business there and improve sales in Canada in time for the key holiday season.

“Clearly we have to have a sense of urgency here,” Cornell said, when asked by an analyst about a timeline for a Canadian turnaround. “No one is happy with our current performance.”

Target, which opened stores in Canada in spring 2013 and operates 130 stores in that market, reported its operating loss widened to $204 million in the second quarter from $169 million a year ago, bringing the total to more than $1.4 billion in a year and a half. Gross profit margin was 18.4%, well below the 30.4% in the U.S. — the result of clearing excess inventory with heavy discounts. Overall, Canadian sales leapt 63% to $449 million.

Still, some say the retailer has its work cut out for it before any turnaround can be viewed as a success.

“They originally wanted to generate $6 billion in [annual] sales, but the stores aren’t productive enough to generate those results,” said Morningstar analyst Ken Perkins. Perkins said big changes are needed to justify Target’s continued investment in Canada. He has warned many of the company’s long-term targets for fiscal 2017 will be tough to achieve, especially given the sluggish start in Canada.

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