American retail giant pulls plug on Canadian stores
After less than two years in Canada, the American retail giant Target announced plans to discontinue all operations of their Canadian subsidiary, Target Canada Co. The plans were revealed on Jan. 15, after Target announced that it would be seeking protection under the Companies’ Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice in Toronto.
Shortly after announcing their liquidation plans, Target Canada announced that it had obtained a CCAA order. Alvarez and Marsal will serve as the Court-appointed Monitor of Target Canada during the wind-down process.
Photo By Mohammad Melebari.
Citing a lack of foreseeable profits until at least 2021, Target Corporation Chairman and CEO, Brian Cornell, released a public statement through the Target website.
“When I joined Target, I promised our team and shareholders that I could take a hard look at our business and operations in an effort to improve our performance and transform our company,” said Cornell. “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.”
Target Canada’s approximate 17,600 employees will be receiving a minimum of 16 weeks of compensation, including wages and benefits coverage for employees not required for the full wind-down period. Employees will receive their severance payments through an employee trust funded by $70 million.
While it will cost the Target Corporation between $500 million and $600 million to cease operations in Canada, the American giant expects to lose approximately $5.4 billion of pre-tax losses from the fourth quarter of 2014.
“We do not take lightly the impact that our decision to discontinue operations in Canada will have on Target Canada’s team members who have worked tirelessly to make improvements to the guest experience,” said Cornell. “That is why we took the unique step of establishing the Employee Trust.”
On Jan. 24, the CBC reported that approximately 520 “store level managers” will receive an average of $11,000 each, while between 21 and 26 “top senior and operations managers” will receive an average of $30,000 each. These extra payments add up to $6.5 million and are part of a Key Employee Retention Plan created by Target Corporation to encourage managers to stay with the company during the wind-down period.
In an affidavit issued by Alvarez and Marsal that four principle issues contributed to Target Canada’s less-than-ideal fiscal situation. Too many stores opening too quickly, a weak supply chain, high product prices, and a weak online presence – as well as other structural factors – contributed to Target Canada’s current position, according to the global turnaround management firm.
Alvarez and Marsal will be supervising Target Canada’s liquidation and wind-down process, while reporting Target’s progress to the Ontario Supreme Court. Alvarez and Marsal will also be providing suggestions on how to handle the coming period.
At press time. Target has not released a timeline for when it plans to complete its discontinuation process. However, the corporation maintains that ceasing all activity in Canada is the only logical move that insures fiscal stability.